Sponsored By

When OEMs consolidate, where does that leave suppliers?

June 1, 1997

4 Min Read
When OEMs consolidate, where does that leave suppliers?

The molder is usually the last to know. Ask Orv Johnson, president of custom injection molder UFE Inc. in Stillwater, MN, who was surprised to read in the Wall Street Journal that one of his customers had been purchased by another major OEM.

In this age of acquisitions and consolidations among companies in many industries, it's not unusual to find molders caught in the middle of a merger. So what does a molder do?

"I jumped on it quick and immediately called the person we deal with at our customer to see what was going on," says Johnson. "As a supplier you're usually not privy to this type of information."

Johnson says all sorts of thoughts run through a president's mind when consolidations and acquisitions happen in the OEM community served by custom molders. "It could be a positive move, but what about the new company's commitment to its current suppliers?" Johnson says he asked himself.

"Any relationship you build is now a new beginning and what happens in the transition can be anybody's guess," he says.

A merger can be beneficial or it can be a nightmare. Ryke Fowler, vice president of sales for the Tech Group Tempe, says that when this happens, "you basically start over from ground zero" building a new relationship.

"There's almost always new management installed, and then come philosophical changes in the way management does business," says Fowler. "There's no history with the new company so it doesn't have an understanding of what you've gone through to get to this point, what it has taken to build the relationship."

The Tech Group Tempe molds primarily for the medical industry, and Fowler says that consolidations within that industry segment have been the number one challenge the company has faced during the past two years.

"The new parent company comes in with its own favorite set of suppliers. If it doesn't like you, you're hung out to dry," states Fowler. "Now you have to re-prove yourself. A contract may save you or at least make negotiations possible if it wants to pull the work, but how many companies in this industry have contracts?"

Lee Jamison, UFE's general manager, says UFE has never had a customer break a contract; however, it's not usually a matter of a customer pulling a mold in two weeks. "It's really a case of long term; will the business shift and in what direction?"

Larger is Better

Ben Riehl, senior vice president of GW Plastics, Bethel, VT, says he views consolidation among OEMs as beneficial because a typical scenario involves a larger, more sophisticated company buying a smaller one. "We'd view that as an opportunity for more work and expansion of our customer base," says Riehl.

However, those who have experienced consolidation among their customers say that the benefits usually fall to the larger, more sophisticated molder with the technology, capabilities, and quality systems in place to handle additional business."It's more expensive to bring a smaller molder up to the standards of a large OEM than to move the molds to a larger molder who already has the standards in place," states Riehl.

UFE's Jamison offers some advice when you discover your customer has just been purchased by a larger fish:

  • Get some honest discussions going with the customer and the management team of the new company. "In a consolidation of two companies, there are going to be winners and losers," says Jamison. "Find out how you as a supplier can help get all the parties on board and make it a smooth transition."

    If you get wind that your customer is being bought by another company, sit down with the president and find out where you will stand in the supply chain after the merger. In other words, get as much information as you can about the transaction, who will be involved, and how it might affect your business with your customer, what your position will be after the merger, and what the potential is for additional business from the new company.

Jamison says in his experience, often the new company doesn't know UFE and its capabilities, so it's best to be proactive by taking the initiative to introduce yourself to the new owners, review the history of the relationship, and get the new management in your corner.

Maybe the best piece of advice comes from UFE's Johnson: "One solution is to always keep your customer base diversified and maintain a good balance [of work] in a variety of markets."

Sign up for the PlasticsToday NewsFeed newsletter.

You May Also Like