OEM suppliers need a sustainable business model

By: 
August 18, 2009

It’s taken decades—and the bankruptcy of many of these suppliers as well as OEMs—but OEM suppliers (processors and mold manufacturers included) are finally getting it. The business model of being a bank without getting interest and penalties just doesn’t work!

Twenty years ago, when I first began reporting on the industry after years of working in it, one of the major topics was the difficulty processors and moldmakers had collecting payments from their customers. Moldmakers in particular had trouble collecting down payments, progress payments, and final payments on molds that often had been completed, shipped, and were running parts somewhere. The automotive industry caused the most heartburn, as the dreaded PPAP became the magic date for the moldmaker getting paid.

However, if payment went from the OEM through the processor, rather than straight to the moldmaker, then that date became even more ambiguous. Many mold shops never received final payment, even as the car/truck model for which a mold was built was cruising the streets.

Processors had it a bit easier. They could simply just shut down the machines and refuse to run parts until the customer paid. When to shut the presses down was a difficult decision, however. Many allowed their customers to get thousands or hundreds of thousands into debt to them before they decided they just couldn’t process parts for free any longer.

The more things change, the more they stay the same. One moldmaker recently told me, “I don’t want to push too hard for payment or they might de-source me and not give me more work.” Huh? If they were not paying you for the work you’ve already done, why would you want more work from them? Duh!

A recent survey released by the Original Equipment Suppliers Association (OESA), reveals that many suppliers have hit the wall with respect to allowing their OEM customers to push them around. They are learning what one company owner told me years ago: “We moldmakers have a lot of leverage with our customers, but we’re afraid to use it.”

The survey’s comments from respondents confirmed that suppliers are starting to get tough. Perhaps they are finally learning that they really do have leverage and even though a customer might be the “giant,” one important mold for a multimillion-dollar program can be the tipping point for payment.

In commenting on the OESA survey, one respondent said what more suppliers should say when dealing with OEM customers (or any others) who don’t want to pay: “We have advised [our customers] that due to liquidity issues we could no longer be the bank on new programs and would give the programs back without progress payments.”

Now there’s a business model that’s sustainable. Clare Goldsberry

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