Dec 06 2006

The Pullout

Published by at 4:55 pm under Uncategorized

The worst thing any processor wants to hear is that they are losing the job(s) to another supplier either onshore or offshore.  If you have any, what are the rights and obligations for this one last business transaction?

You get the phone call, FAX, e-mail or registered letter:  Your customer is terminating their relationship with you and wants his tooling so that they can be relocated elsewhere  OUCH!! Since most processors are neither enjoying high profit margins nor an overload in business this is a large economic hit.

In the short run emotions will run very high although this is the last place you want them to boil over.

RECOVERY

First, look over your customer list.  Many molders make a very large mistake:  They fall in love with one customer who has over time become more than 10% of their income.  Even with 5% of your sales coming from one customer an abrupt pullout may well drive you onto the auction block of a bankruptcy sale.  However all is not lost.

It is a well known fact that soliciting new business from existing customers is far easier than the long and involved process of becoming a qualified supplier to a new customer.  Get on the telephone and call all your other customers.  Tell them you have open machine time and would welcome any new business or would be pleased to quote existing business currently residing at another molder.  Chat up the idea of being a ‘preferred supplier’ that would nest neatly into your customer’s ‘vendor consolidation’ plans.  HOWEVER, taking on more business from one customer also has the risk of their becoming a significant portion of your sales and thereby putting you at risk for either a pullout or an invitation for getting your teeth kicked in by the buyer demanding the ‘China Price’ or else he’ll pull the work.

Second, an often overlooked competitive advantage some shops have is the material they mold.  Let’s assume you have a lot of jobs that are using unstabilized PVC or any other unique material.  Obviously you have the expertise to run this, better than the average molder. You might want to solicit business simply based on this expert knowledge alone.

In the short run you may have to downsize. In the best situations this is painful and awkward.  Seriously look at splitting shifts into 12 hour shifts running less machines but five days a week.A little math will show you that there are less people on the payroll than running three shifts five days with less machines.  Do the math, go for the lower costs.

THE PULLOUT

Keep in mind that Custom Processing is a business that runs from order to order.  Unless formally put in writing your customer has no contractual long term loyalty with you.  At the very minimum his obligation is to pay off all outstanding invoices.At this time he can collect his tools and go elsewhere. Obviously this will leave you with standing inventory, work in progress, your JIT warehouse, and raw materials.

Here’s where life gets tricky:  When you get the notification your business is going to be pulled you actually have as much right NOT to do business with your customer as they do to you.  You can actually simply stop production and no longer ship parts.However the more gentlemanly thing to do is not to attempt to stall the pullout (because this is a decision that has long been considered without you) but ask as part of the program if you can have all the inventory purchased as well as the raw material shipped to the new supplier to ease the transition and startup problems your customer and new supplier will no doubt experience.

I have actually heard buyers demand: “I expect you to assist us . . . . . ” that the previous molder accompany the molds to the new molder to assist in the startups and qualifications.  This conceit is amazing. During your relationship with your customer you would be a fool if he asked for processing conditions and you sent them to him. As a processor, your quality records, process conditions, set up sheets and mold history are really all you had to sell in the first place.  Anyone can buy material and equipment to run a mold.  Your expertise should NOT be for sale; at least for free.  I’ve seen molders offer their services to help in startups but only for the princely sum of $500/hr and up with a purchase order in hand and essentially a blank check. You got every job based on the fact of being the low bidder, your delivery performance and quality history.  If you give up your expertise in this, you’ve given up everything.

Any secondary tools, jigs, fixtures, assembly aides and/or inspection gauges that you made at your own expense to run these jobs are yours.  You don’t have to provide them to the customer. However you can sell them at a ‘market will bear’ price. Keep in mind if the price is too high, you won’t sell them.

Depending on where the mold is going, simply strapping it on a skid might not be very smart.  You might inquire if the mold should be sprayed with rust preventative, wrapped in plastic, braced to a skid, boxed with exterior plywood then banded to the skid with steel straps.  If it’s going to be on a freighter to China your customer might want it not to be rusted out when it arrives.  Naturally this wouldn’t be a free service.

GETTING THE BUSINESS BACK

Offshoring, vendor consolidation etc. are currently in vogue.  While they have their benefits they come complete with their own risks.  It is never in anyone’s best interest to burn bridges.  With whatever grace and nobility you can muster, give up the tooling. However continue a relationship with the buyers and engineers.  In many cases this momentary lapse of sanity on their part will result in some fabulous disasters.  If you continue you ‘assistance’ you’ll be the proverbial White Knight when they coming looking for someone to rescue them.

Will you get all the business back?  Nope. However if done properly you will probably get new business that won’t be relocated.

This time CATCH A CLUE: Don’t let any customer or market sector own more than 5% of your sales dollar.  The more you diversify the more the individual bumps in the market will offset each other and not hurt you as much.

This blathering might help you.  OR you may consider it all dribble and only worth lining the cage of the office parrot.

Your choice.

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