OEMs should have contingency plan

As an owner, purchasing manager, engineering manager or quality manager of an original equipment manufacturer, much of your time in searching for a quality injection molder is spent making sure your decisions satisfy your immediate and long-term goals. So you find your perfect molder or other service manufacturer and things are humming along and life is good.

All of a sudden, the market changes from prosperity to uncertainty. You read in the paper of the many companies laying workers off due to falling sales. Your customers start to push back their schedules and in some cases, cancel purchase orders. Now what do you do? Your first thought will be to cut your costs. You may lay off workers, offer early retirement or move to a shorter workweek. You are certainly going to talk to your suppliers to see how you can work together to reduce costs. After all, let's not think that your customer's slowdown will not affect your buying patterns. Quite the contrary; you're going to push out your schedules and in some cases, cancel your orders.

All the while, your suppliers' other customers are doing the same to them, eroding their backlog and eating away at their solvency.

Then, when you feel things have leveled off, some large companies — some of which are your competitors — decide they are going to relocate their assembly operations to low-cost regions like Mexico, China or India. Looking at your business, you find a move would be too costly.

Remember, while all this is going on, many molders and other manufacturing service companies are trying to keep their heads above water.

So what do you do? How do you and your staff slow down or stop the momentum of this mudslide? You quickly search out manufacturing services that are of the mind-set to reduce your costs. You commit and insist that your internal resources work as a team with your molders to find ways to reduce costs through material changes, combining components and automation.

So now we come to contingencies.

Perhaps you feel that things have leveled off and you will be able to ride out the storm. The question you need to ask yourself is: “Will my suppliers also be able to ride this out?”

What happens if they can't? Will you have time to find other sources?

Over the past year or more, in the back of every trade magazine I have read, I have found at least two auction notices per month announcing companies going out of business. I have been asked several times in the past year by customers and prospects to rapidly respond to their need to transfer molds to my company because they were just advised that their molder was closing its doors. Worse yet, I know of companies who have had to collide legally with the Internal Revenue Service to retrieve their capital goods after the doors were padlocked because of tax debt or bankruptcy.

My reason for writing this is not to alarm you into thinking there is an impending doom. I don't believe the scope of the international economic community will ever get to that point. My point is to spark some thought, conversation and planning for contingencies. Before your suppliers place you in a threatened or compromised situation, design a plan to assure the well-being of your company. Take a close look at your molders. Ask yourself these questions:

* Is your molder's financial health good? Pull a Dun & Bradstreet report on your supplier. Do this on a regular basis. Request an updated credit reference list. Personally check out these lists and ask the hard questions.

* What is the market mix of my molder? If your molder is primarily selling and manufacturing to your market, that should be a concern. If its primary market is going down, that will have a profound effect on its sales, and its ability to regroup and meet your needs.

* How large is my molder? The largest fall harder. The smallest fall easier.

* Does your molder have good engineering support?

* Does it have a purchasing department to focus on material cost reduction and searches for alternative materials?

* Is your molder willing to work with the technical personnel of resin suppliers? Raw material suppliers spend a considerable amount of money to support the molder and the OEM in material choices, design functionality and cost reduction.

* Does your molder have experience in transferring existing molds through its system? If you should run into a situation where one of your current molders has forced you to remove your molds, your remaining molders will be called upon to react quickly to seamlessly maintain your production requirements. Are they prepared and experienced?

* Finally, have you reviewed alternative molders and decided where you would move your molds in the event this happened to you? In other words, do you have a contingency plan?

Milgram is executive vice president of Topcraft Precision Molders Inc. of Warminster, Pa.