Virtual enterprising spurs growth

How many molders, captive or custom, would willingly take the podium at their material supplier's sales meeting to explain the working relationship between the two companies? Ron Kay recently did just that. As president of Filtertek, a filter manufacturer with a captive molding operation, Kay transformed the business via strategic alliances.

While the idea of "partnering" with suppliers is not new, Filtertek employs a broader concept that could more accurately be called virtual enterprising. In this newer version of partnering, suppliers become a strategic link by offering resources, insights, and information in addition to materials and services.

Filtertek developed a line of patented automotive filters using proprietary technology and a business strategy that relies heavily on supplier alliances. Design and processing assistance from its material supplier, for example, helped bring several new products to market.

Filtertek supplies automotive, medical, and industrial filters to a wide range of OEMs. Worldwide, the company has more than 200 molding presses ranging from 10 to 700 tons, and it molds more than 60 different resins. During the past 18 months, it has developed 22 patented products, and Kay says that 80 percent of them are going to market with the help of strategic alliances.

What motivated him to look at collaborating with suppliers as a way to grow? "Four years ago, I recognized that our company needed to be totally overhauled," Kay told IMM in a recent interview. "Our growth margins suffered erosion during a 10-year period. Several months after purchasing the company, I saw that we were competing on a commodity basis, churning out "me-too" products, competing based on pennies a part. I knew we needed to change how we approached the market, and what we approached the market with. And I knew I couldn't sustain investments to make these changes without relying on others."

Priority one, Kay recalls, was to create a business focused on patented and proprietary products and/or processing technology to eliminate commodity products and price competition. Kay and company targeted several niches. The first one was automotive transmission sump filters. "We had a patented product, but just one filter in the product line," he says. This represented revolutionary technology - the first all-plastic transmission sump filter consisting of a nylon housing and thermoset filter media. The reason Filtertek didn't have other versions, says Kay, is that the all-plastic filter was higher in price than existing metal-plastic filters. When they broke down costs, designers found that materials accounted for 55 percent of the product price. Filtertek was purchasing glass-filled nylon 6/6 from a major material supplier, but had no negotiating room to bring the cost down. "We turned to Hanna Engineered Materials to uncover less costly alternatives," Kay noted, "and it designed a custom grade that effectively cut our material costs by 25 percent."

Under the terms of a three-year agreement, Kay promised to buy the material from HEM exclusively in return for a guarantee that the grade wouldn't be sold to any of Filtertek's competitors. Kay's design team then went to work looking for other applications that could be converted to the custom grade.

When Filtertek first began this project three years ago, it supplied one product to three vehicle platforms at Ford. Today, eight versions of Filtertek's all-plastic filters can be found on 28 vehicle platforms at Ford, GM, and Allison Transmissions.

Kay explains why the relationship works: "Hanna was our very first strategic alliance - we've since done 15 more. The Collaborative Advantage, an article in Harvard Business Review, inspired me to look for these kinds of opportunities. When you become partners, you become educators for each another. You tend to get involved in a much deeper way, sharing business intelligence, growth strategies, and challenges. Developing mutual respect and trust makes it work."

At Filtertek's Puerto Rican facility, which produces $25 million worth of filter parts annually, is another example of how virtual enterprising pays off. "We wanted to reduce inventory and do a better job of managing materials," said Kay. "Hanna offered to manage all the materials supply for this facility by building a warehouse on the island and providing two-day turnarounds. This freed up a good deal of warehouse space for manufacturing use."

Filtertek's all-plastic automotive oil filter came into being as a result of its alliances as well. "We needed help to develop this, and Hanna offered its Design Center resources for structural and mold filling analyses. They assisted during mold design, processing start-ups, and mold trials." Partnerships like this mean that both parties invest in each other so that both can grow, he adds.

According to Gary Foote, vice president of sales for Hanna Engineered Materials, the need for this kind of customer-supplier relationship is growing. "What we've seen in the marketplace," says Foote, "is that major resin suppliers seem to be taking a giant step backward, particularly in the way that they are servicing the injection molding community. Hanna has positioned itself to fill that void with a wider breadth of products, a willingness to develop custom materials, and a major investment in technology and people to aid the IM community with processing and design assistance."

Applications suited for an unmodified base polymer are fewer and farther between, Foote contends. "Most new solutions require resins that have been modified in some way - added UV resistance, higher flow, increased stiffness and toughness, or better electrical properties, for example - some value-added equation that adds properties through the compounding process." Foote believes the need that major resin suppliers identified years ago for technical and processing support hasn't gone away; it has increased along with the degree of sophistication in new applications.

"All of the easy metal substitutions have already been done, and what we're seeing now is that even plastic-to-plastic substitutions are much more complex than they were even 10 years ago," he said. "The need for flow analysis, design, and processing assistance goes up as the technology continues to evolve."

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