The Business of Molding #19

It is important to understand how your customers view you and what kinds of games they can play. It's equally important to know how you'll respond. Bill Tobin of WJT Assoc. talks about these relationships in a third installment, part of his ongoing series on business relationships of custom molders. The first part appeared in IMM's August 1997 issue; the second part in September 1997.

OEMs today are seeking a small but highly loyal group of suppliers. Hitching your wagon to a large client may seem like an invitation to abuse, and there are many examples of this out there. But the buyer's job is to get the best deal he can with the least amount of trouble. Your job is to maximize your profit and minimize your losses. These two philosophies are not necessarily in conflict with each other.

Most vendor evaluations are an in-depth look to see if a fit exists. Today, the auto and computer industries are demanding more of their suppliers (both in terms of using electronic technologies and statistical reporting) than they themselves are capable of doing in-house. While this may seem hypocritical, there is a logic to it. They are simply preparing for a massive downsizing.

In the future, most big- name product producers will be designers and marketers. They will do little, if any, manufacturing. This capability allows them to easily upgrade their systems to work with suppliers, and they will abandon obsolete systems that related to their own in-house divisions and plants. Some clients require molders and moldmakers to have systems like their own MRP and CAD systems. Of course, another equally large client with a different system, different languages, or custom configurations can require that you use its systems and equipment.

Small businesses are now the targets for big business. Why? Because they let themselves be targets. Too many small companies do business with those listed in the Fortune 500 and feel powerless. Partially this is our own fault. We think because they have the money, clients can make whatever rules they want and we must abide by them. By giving them this power we become the willing victims of being squeezed out of fair profits.

Many custom molders are highly intimidated by the customer's threat of pulling jobs to have someone else mold the parts. However, there is a simple truth to be considered: In today's mentality of low inventories and JIT deliveries, the pain and agony of relocating any custom job can only be justified if it offsets the pain and agony of leaving it where it is. If a customer is going to pull a job, he'll do it, and there is little to be done to stop it. If you fall for the bluff that the tools will be pulled if you do not lower the price, you are only showing the customer he can blackmail you into further concessions in the future. If you go out of business, your customers will just take their tooling elsewhere. Here are two more games that are played.

Vendor Evaluation

The Scenario: The client's buyer and his engineering team come to you to do their evaluation. They are very impressed with your operation, your quality, and your delivery performance record. The buyer takes you aside and tells you he will very shortly be going to electronic purchase orders, releases, and payments, and he will also be releasing dimensionless databases as part designs. While you have some computer equipment, he says in order to stay an approved supplier (or become one) you will have to do some significant upgrading of your systems as well as training your personnel. He also states his company is instituting a program called "Q/A-SPC 2000." (This is CorpSpeak for "Quality Assurance, Statistical Process Control for the next century because we don't know how to do it.") He dumps a 50-page pamphlet on your desk that looks a lot like a combination of the International Standards Organization (ISO 9000) requirements and a certification program for your company in SPC.

The Response Your Client Anticipates: You look at this program (with which you know the company itself couldn't comply), the business, and the profit you have had (or anticipate) from this customer, and ponder your decision. The buyer expects that you will pony up for the cost of equipment, training, and all other secondary costs to meet these requirements to get the job.

Your Counter: If your IQ is higher than your shoe size, you will quickly figure out you are being asked to invest a major sum of working capital for something that has a convenience factor payback for your client. However, he also knows this will allow him to get better deliveries and lower prices down the road. Agree totally with the buyer about the program. Perhaps you should purchase new computer equipment. Ask to be "paid to play," to make sure you are completely familiar with his required MRP system, CAD systems, and other electronic documentation transfer systems.

Require the client to provide the software, secondary firmware (dedicated telephone lines, encrypted modems, etc.), training of your personnel, upgrade training, and new releases of the programs as they come out and as your personnel turns over. If possible, get into his master purchasing program so that you can buy computer equipment at the prices he is buying, instead of having to pay street price. This should only be done with the understanding that it is tied, in writing, to more business (and more profit) for you both.

Your Last Move: Show how linkage to more business, better engineering, tooling modifications, and new jobs could substantially impact the cost of parts. Do not make the concession to absorbing the entire cost, because your investment has a payback only if it works with his system and is tied to a guarantee of work.

Make Dust or Eat it

This is a variation of the vendor evaluation game. It has two scenarios:

The First Scenario: You are trying to become a new supplier to the client. Assume that you have played the vendor evaluation game. You now have the systems in place, the folks trained, and all is operating with a good degree of success. Now is the time to leverage this new-found capability to new customers.

A normal plant visit follows your initial sales call. Here you take the opportunity to point out that you have electronic capability, and many other vendors do not. Show him the advantages of immediate data transfer on releases of orders, or your ability to look at his market projections so that your response time can be quicker. Also show that through data transfer and e-mail you can assist/analyze his designer's CAD drawings and offer added value by eliminating problems early in the design phase. With all these capabilities in place, it will be difficult for him to turn you down.

The Second Scenario: You are trying the leveraging game with another division of your existing client's company. Since most companies use corporate systems, another division's system will be almost identical to the one for which you are approved. This leverage allows you to become a preferred supplier with a minimum of work.

The Response Your Client Anticipates: There are two kinds of suppliers: those who make dust and those who eat it. Anything that makes the job of the buyer easier will enhance his status and allow you to make more profit. Other secondary costs to meet these requirements are a good investment for the buyer to make in you. There should be very little work necessary to become approved if you are "world class."

Your Counter: Present your credentials, show off the plant, buy lunch. The last question you should ask is, "If I am equal or better than your existing suppliers, what does it take to become a preferred supplier and quote on some jobs?"

Your Last Move: Shut up and listen. Some folks are so in love with their existing supplier base they will stall their own management by making excuses why their buddies will not or cannot upgrade. If this is the case, you are kicking a dead horse. If the buyer is truly interested, you'll get the business. There have been many cases in which a molder came to a large potential client and said, "Let us make your manufacturing problems on this product go away," when the client's original thinking was to ship it off to China or Malaysia. However, being electronically linked and nearby is usually much more tempting than dealing with 11 different time zones, multiple languages, and a completely different culture.

Business survival is a game. There are rules, tactics, players, strategies, and goals. As anyone knows who has stepped up to a roulette table or craps game in a casino, not knowing the rules is a quick way to separate you from your money.Assoc.

Bill Tobin will conduct a three-day seminar in January that revolves around game strategy and other issues related to the business side of injection molding. This article is adapted from his new book, "Survival Techniques for the Small Manufacturer."