Resin Procurement Due Diligence: A ResinSmart Guide for PE and M&A

An eye-opening stat: improved resin procurement can represent up to 15–20% of EBITDA improvement. And yet, too many PE and M&A teams still just give it a quick once-over in diligence before moving on. Makes no sense, right?

Putting an even finer point on things, resin represents 60% or more of raw material costs in plastics manufacturing, often the single largest P&L line item. However, by not analyzing it closely enough, millions in margin leakage can secretly hide in supplier agreements, pricing mechanisms, and sourcing inefficiencies. And that’s all while deal teams dissect customer contracts and manufacturing assets with electron microscope–level scrutiny.

That’s the gap we’re closing with this guide. What follows is a complete framework for resin procurement due diligence, including:

• Identify hidden risks in contracts and supplier structures
• Spot common red flags that threaten margins and continuity
• Quantify untapped value with benchmarking and spend analysis
• Plan the first 100 days to capture quick wins and fund transformation

By the end, you’ll see why resin procurement isn’t a side note in diligence. Instead, it should be a core investment return driver. Let’s get started.

Why Resin Procurement Matters in Diligence

Resin procurement deserves board-level attention during diligence for one simple reason: it directly impacts every financial metric PE firms care about.

As we said, resin represents the largest expense line in most plastics processors, often exceeding labor, overhead, and depreciation combined. Therefore, a 5% swing in resin costs can flip a deal from a winner to a write-off. Yet many firms treat it as a pass-through cost, assuming market prices are market prices. But that assumption leaves money on the table.

Of course, volatility only compounds the risk. Resin prices can fluctuate wildly based on feedstock costs, production outages, trade policies, and seasonal demand. One force majeure event in Texas can send prices up 20% overnight. Without proper hedging, contract structures, or supplier diversification, that volatility flows straight to the bottom line.

Procurement transformation also delivers predictable, measurable returns. While revenue growth depends on market conditions and operational improvements can take time, procurement savings drop directly to EBITDA. Properly executed initiatives return 300-500% ROI within 18 months.

However, many processors still operate with outdated practices:

• Single-source suppliers with no qualified backups
• Handshake agreements lacking pricing transparency
• Prices tied to indexes they can't audit
• No systematic benchmarking against market rates
• Automatically accepting supplier increases

Each inefficiency represents trapped value. Above-market pricing of just 3 cents per pound costs a 50-million-pound processor $1.5 million annually. Poor contract terms that lag market decreases by 30 days can mean millions in overpayment during volatile periods. Emergency spot purchases at 15% premiums destroy quarterly margins.

Together, these “small” inefficiencies routinely erode 5–15% of EBITDA. The smartest buyers recognize procurement as both a risk to control and an opportunity to capture, striking their best deals by uncovering what others miss.

A Comprehensive Due Diligence Framework

Effective procurement diligence isn’t just a matter of reviewing contracts and supplier lists. It’s far more nuanced than that. Instead, you need a systematic framework that uncovers hidden risks, quantifies improvement potential, and builds the roadmap for post-close value creation.

Let’s look at the different components needed for such a framework and, more importantly, how PE groups and M&A teams should approach them.

Financial and Cost Structure Analysis

For diligence teams, the numbers reveal whether procurement is a hidden liability or a golden opportunity. Most targets have never benchmarked their resin costs systematically, so they genuinely don't know if they're overpaying. That knowledge gap often translates to significant recoverable margin.

Three years of detailed spend data are usually sufficient to reveal the important patterns driving resin pricing. Break it down by resin grade, supplier, and delivery location to spot inconsistencies and concentration risks. When Site A pays substantially more than Site B for the same material, you've found immediate consolidation savings.

Benchmarking requires multiple reference points to paint the full picture. The most reliable comparisons come from:

• Published indexes (CDI, ICIS, IHS) – industry standards that most contracts reference
• Regional spot market rates – reveal local supply/demand dynamics and arbitrage opportunities
• Competitor intelligence – shows what others actually pay for similar volumes
• Volume-adjusted tier pricing – confirms whether they're capturing appropriate quantity discounts

Beyond base resin price, the total delivered cost often contains hidden margin erosion. Freight, fuel surcharges, packaging, and handling fees can add substantial costs to invoices, all expenses that many targets never properly track or challenge. When suppliers bundle these charges into a single "delivered price," you’re susceptible to them padding margins. However, itemized billing creates the transparency needed to identify and eliminate unnecessary fees.

The target's approach to volatility management reveals their sophistication level. Some processors time purchases intelligently, maintain optimal inventory levels, or use basic hedging instruments. Others simply react to each market move, leaving millions in timing-related savings uncaptured. A good rule of thumb: their historical responses to price spikes—i.e., panic buying versus strategic patience—tell you what kind of team you're inheriting.

Contract Analysis and Terms Assessment

Contracts often reveal procurement maturity faster than any spreadsheet, also determining how much room you’ll have for post-close improvements. Put differently, well-structured agreements protect margins and provide flexibility, while poor ones lock in disadvantages for years, limiting your post-close options.

Pricing mechanics deserve the closest scrutiny. The choice of index, adjustment frequency, and lag periods all impact cost in ways that aren't immediately obvious. So, although monthly averaging with 30-day lags might sound reasonable, suppliers often capture extra margin when prices fall. Daily pricing with immediate pass-through keeps things cleaner, though few targets negotiate these terms.

The best agreements include protections that create value beyond just price. Look for:

• Price caps or collars – limit volatility exposure during market spikes
• Volume flexibility bands – allow reasonable variation without penalties
• Meet-or-release provisions – force suppliers to match competitive offers
• Audit rights – enable verification of surcharges, fees, and index application
• Performance guarantees – tie pricing to quality and delivery metrics

Termination clauses often create unexpected constraints that limit your improvement options. Auto-renewal provisions are particularly problematic, locking in unfavorable terms for another year unless you catch that 180-day notice requirement buried in paragraph 47. Even when you identify better alternatives post-close, minimum purchase commitments mean you're stuck buying from incumbent suppliers regardless. These constraints compound when liquidated damages make switching prohibitively expensive.

Thus, understanding this web of restrictions before closing helps set realistic expectations. You need to know whether you're planning a Year 1 transformation or a Year 3 evolution.

Contract disruption provisions deserve equal scrutiny, especially given recent supply chain chaos. Force majeure language that seemed like boilerplate in 2019 now determines whether you'll have resin during the next crisis. The difference between "fair share" allocation and guaranteed minimum volumes could mean maintaining production or shutting down lines.

Remember, vague language favors suppliers, whereas specific language protects buyers. The targets that survived 2020-2021 without major disruption usually had contracts that anticipated these scenarios.

Supplier Risk Assessment

Supplier concentration tells you more about resilience than any single pricing metric. When one supplier provides 70% or more of critical resins, you lose negotiating leverage and gain supply risk. Yet many targets view these relationships as strategic partnerships rather than dangerous dependencies.

Financial health checks on major suppliers often reveal warning signs that the target missed. The indicators that matter most include:

• Credit deterioration – declining Dun & Bradstreet scores or agency downgrades
• Payment term changes – shifts from standard terms to COD signal cash flow problems
• Ownership transitions – PE exits or distressed sales create uncertainty
• Capacity utilization – underutilized plants may face closure risk
• Customer concentration – losing their largest customer impacts everyone else

These risks compound when you factor in geography. Gulf Coast suppliers mean hurricane exposure every summer. Single-country sourcing means tariff vulnerability with every trade dispute. West Coast dependency means port strikes matter.

The most resilient targets maintain diversity across regions, technologies, and feedstock sources. But diversity alone isn't enough.

The real test is whether backup suppliers are actually ready. If alternatives have been tested, qualified, and approved, switching becomes a negotiation tool rather than a six-month project. Many targets have never qualified alternatives, viewing it as unnecessary expense. That perspective changes quickly when their sole supplier declares force majeure.

Operational Excellence Assessment

How procurement sits inside the business often predicts its performance, along with any wiggle room it might have for improvement. When procurement is centralized, buyers can leverage total volume for better pricing. However, when each plant manager negotiates independently, nobody coordinates. And the result is predictable, with three plants buying the same resin at three different prices.

This fragmentation shows up immediately in spend analysis. Same supplier, same grade, wildly different terms. That's not strategic sourcing. It's organizational chaos that suppliers happily exploit.

Technology gaps also reveal themselves quickly during diligence. The most successful organizations use modern tools that create real advantages:

• ERP-integrated procurement – see all spending in real-time
• Benchmarking platforms – compare prices to market automatically
• Contract management systems – never miss renewal dates or terms
• Supplier scorecards – track delivery, quality, and service trends
• Predictive analytics – anticipate price moves before they happen

Many targets, however, still run procurement through spreadsheets and email. This isn't just inefficient. It's downright blinding. They can't see spending patterns, track compliance, or spot savings opportunities. Every decision takes longer and relies on incomplete information.

Meanwhile, maverick spend tells you about process discipline. When employees bypass procurement to buy directly, they almost always pay more. If half your purchases skip the procurement team, you're leaving serious money on the table. Once again, truly successful companies maintain high compliance through clear policies and simple processes. Weak ones let everyone do their own thing.

Finally, reporting structure is another significant influence on success. When procurement reports to operations, cost often takes a backseat to keeping production running. When it reports to finance, cost control improves but supplier relationships may suffer. The most effective structure usually has procurement reporting directly to the CEO or COO, high enough to balance cost, quality, and strategic priorities.

Quality Management and Compliance

Quality problems create hidden costs that fester and expand. When bad resin shuts down production, you pay for the rejected material, freight both ways, disposal fees, idle equipment, and emergency replacements at premium prices. Yet many companies treat quality as someone else's problem.

The smartest suppliers know exactly which customers test deliveries and which just trust the paperwork. The lax customers get the marginal batches. The strict ones get the good stuff. Where do you think your target falls?

As you might guess, inspection protocols vary widely. Some companies test every delivery with sophisticated lab equipment. Others never test anything, trusting supplier certificates completely. The sweet spot usually involves statistical sampling, testing enough to keep suppliers honest without slowing down production.

Over time, rejection rates by supplier can tell important stories. Sure, occasional problems happen to everyone. But consistent quality issues from one supplier suggest something worse—they see your target as a dumping ground for substandard material.

Of course, regulatory compliance can be another massive, critical factor in certain markets. The requirements can stack up quickly:

• FDA certification – mandatory for food-contact plastics
• EU 10/2011 – needed for European food packaging
• REACH and RoHS – restrict hazardous substances globally
• UL Yellow Cards – required for electrical components
• PPAP documentation – automotive industry standard

Like it or not, missing certifications block market access. And just one recall can destroy years of profit, especially with enforcement ramping up globally.

Adding salt to the wound, sustainability credentials matter more and more each year. Customers want recycled content, but claims need third-party verification. Carbon footprint data needs legitimate lifecycle assessments. Mass balance documentation must follow recognized standards.

But without certifications like ISCC PLUS or RecyClass, you face a growing competitive disadvantage as customers demand proof, not promises. And that’s not an easy spot to be in.

Market Intelligence and Strategic Positioning

Strong procurement teams anticipate market changes weeks or months ahead. Weak ones find out when suppliers send price increase letters. Evaluating a target's market intelligence capabilities tells you which type you're acquiring.

Start with their approach to grade strategy. Over-specification is rampant in plastics processing, with many companies using premium resins where commodity grades would perform perfectly well. Sometimes it's risk aversion, sometimes it's "we've always used this grade," and sometimes nobody's bothered to test alternatives.

Similarly, many processors maintain dozens of similar grades that could be consolidated into a handful of SKUs. This fragmentation weakens negotiating power and complicates inventory management.

The difference between reactive and proactive procurement becomes obvious when you examine their market monitoring. The better teams track early warning signals that help them prepare rather than scramble:

• Feedstock prices – ethylene and propylene movements predict resin changes
• Maintenance schedules – planned shutdowns signal coming supply constraints
• Force majeure events – immediate indicators of disruption
• Trade flows – import/export shifts reveal supply/demand imbalances
• Capacity changes – new plants or closures affect future pricing dynamics

Without these insights, companies operate in the dark. They learn about increases from supplier letters, only discovering shortages when orders don't ship. They’re constantly explaining last quarter's miss rather than preparing for next quarter's opportunity.

Elsewhere, sustainability readiness has shifted from optional to essential. Major customers increasingly require recycled content, bio-based materials, or circular economy participation. Unfortunately, these aren't simple switches. Recycled resins require extensive testing and customer requalification. Bio-based alternatives often need different processing parameters. And circular economy programs demand reverse logistics capabilities that many targets haven't even considered.

The harsh reality is this: targets without a clear sustainability roadmap risk obsolescence. As markets shift toward sustainable materials, traditional processors could become stranded assets. In other words, the equipment and capabilities you're buying today might be worth significantly less if they can't handle tomorrow's materials. That's a valuation risk that many diligence teams overlook. Until it's too late, of course.

Resin Procurement Red Flags to Watch For

Not every procurement issue is a deal-breaker. But certain patterns should trigger deeper investigation. These red flags signal more than operational hiccups—they represent structural problems that will erode EBITDA and create post-close headaches.

Financial red flags start with the obvious: paying above market rates. But dig deeper. Are emergency spot buys eating into margins because nobody's watching inventory? Is procurement data scattered across spreadsheets with no clear cost visibility?

When a target can't quickly tell you their resin spend by grade or supplier, you're looking at months of cleanup work. And that's before you can even start capturing value.

Operational red flags compound these financial problems. Consider the ripple effects:

• Chronic late deliveries disrupting production schedules
• Quality issues forcing expensive rework or customer returns
• Zero qualified backup suppliers for critical grades
• Poor inventory management swinging between stockouts and excess

These aren't just inefficiencies. They're symptoms of a procurement function that's fundamentally broken. And expensive to fix.

Strategic red flags reveal the deepest problems. Look for companies buying purely reactively, waiting for crises before acting. No recycled resin strategy despite customer pressure. Procurement teams without analytical tools, flying blind on market movements. Zero KPIs beyond "did we run out of material?"

Perhaps most telling: no board-level visibility into their largest raw material cost.

Each of these red flags represents latent EBITDA waiting to be captured. But more importantly, they signal post-close disruption risk that could derail your entire investment thesis.

Value Creation Opportunities

Once you've identified the problems, the path to value becomes clearer. A sound approach is to sequence initiatives based on complexity and impact, building momentum through early wins while laying groundwork for transformation.

Quick wins (0–6 months) generate immediate cash and credibility:

Start with contract renegotiations using market benchmarking data. Consolidate fragmented spend across sites to unlock volume discounts. Enforce compliance to eliminate maverick buying at premium prices.

Meanwhile, optimize inventory levels to free working capital. And critically, introduce real-time benchmarking so everyone knows if they're overpaying.

These moves typically capture 3-5% savings within months. More importantly, they fund the next phase of improvements.

Medium-term initiatives (6–18 months) build sustainable advantage:

Now you can rationalize the supplier base, cutting complexity while improving terms. Here, look to implement procurement technology that creates ongoing visibility. Pursue recycled resin strategies that customers increasingly demand.

This is also when portfolio synergies emerge. Combine volumes across portcos. Share qualified suppliers. Leverage collective negotiating power. These cross-company initiatives often deliver the highest returns, yet many firms never attempt them.

Long-term transformation (18+ months) embeds excellence:

The final phase institutionalizes capability. Build a world-class procurement team through hiring and development. Integrate ESG requirements into every sourcing decision. Develop innovation partnerships with key suppliers.

Most critically, elevate procurement from back-office function to board-level strategy. When procurement has a seat at the table, margins stay protected, long after you exit.

Integration Planning: The First 100 Days

But success in procurement transformation isn't about perfection. It's more about momentum than anything else, at least during those first 100 days that set the trajectory for everything that follows. Let’s take a closer look at that critical time period.

Pre-Close Foundation (Days -30 to 0)

Preparation determines execution quality. Before signing, complete your data room analysis and identify specific quick wins. Map every supplier contract with renewal dates flagged. Prepare communication plans for both suppliers and internal teams.

Most importantly, identify "no-regret" moves to execute Day 1. These become your early proof points.

Week 1: Stabilize and Assess

First, do no harm. Freeze all non-critical supplier changes to prevent disruption. Confirm that contract assignments transferred correctly and that continuity is assured.

Then, meet with your top 5 suppliers. Not to negotiate, but just to ensure supply security and to set expectations. Simultaneously, establish your procurement steering committee with clear mandates and meeting cadence.

Days 8-30: Quick Wins

Now you accelerate. Launch benchmarking analysis comparing every price to market indices. Identify and capture immediate correction opportunities, those obvious overcharges that somehow persisted for years.

Consolidate fragmented spend across sites, especially where the same supplier serves multiple locations at different prices. Finally, implement spend visibility dashboards so everyone sees the same numbers.

Days 31-60: Build Momentum

With basics stabilized, now you tackle bigger issues. Complete a comprehensive supplier risk assessment, identifying vulnerabilities before they become crises. Renegotiate your highest-impact contracts using the benchmarking data you've gathered.

Critically, implement compliance controls to stop maverick spending. And begin qualifying backup suppliers for single-sourced critical materials. These moves prevent future problems while capturing current opportunities.

Days 61-100: Institutionalize

The final sprint embeds new capabilities. Roll out procurement KPIs with regular reporting cadence—what gets measured gets managed. Launch technology implementations for spend analytics and market benchmarking.

Don’t forget to communicate early wins to the board and LPs, building support for continued investment. Then develop your 18-month transformation roadmap with specific milestones and accountabilities.

Success metrics for Day 100 should be clear:

• 3-5% cost savings identified or captured
• 100% contract visibility achieved
• Supplier risk heat map completed
• Procurement governance established
• Team aligned and energized

Hit these targets, and Year 1 becomes transformational rather than transitional.

ResinSmart's Role in Due Diligence

Resin procurement is no longer a hidden risk in manufacturing M&A and PE. Rather, it's a proven value driver for firms that treat it strategically. In fact, the difference between average and exceptional returns often comes down to procurement excellence.

Unfortunately, most teams still lack the specialized tools and expertise they need to effectively evaluate procurement during diligence. That's where ResinSmart genuinely changes the game.

Our platform delivers what deal teams need most: real-time price benchmarking that instantly reveals overpayment, supplier risk mapping that prevents disruption, and predictive analytics that anticipate market moves. Plus, battle-tested integration playbooks that accelerate value capture.

We've helped firms cut resin costs by 19% on average, delivering 5:1 ROI that translates directly to EBITDA improvement, not to mention over $1B in total savings. But the best part of all? You can start using our 27+ years of experience and insight immediately, even during preliminary diligence.

Ready to transform procurement from risk to return? See how ResinSmart unlocks sharper diligence and faster post-close value creation. Request your demo today.