Surviving and thriving in industry consolidation

Features - Supply Chain

Maintaining an efficient supply chain – as customer and vendor, locally and globally.

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November 30, 2015

A fragmented industry, especially one trying to cope with fragmented supply chains, is an industry facing problems. Competition is healthy, but when customers are having to source parts from a multitude of small suppliers, the challenges can outweigh the benefits. Small suppliers can be financially vulnerable, particularly in the wake of major economic events such as the 2008 global financial crisis. Small companies cannot achieve the economies of scale secured by larger businesses and therefore cannot compete on price. And the logistical and bureaucratic complexities of sourcing from many suppliers, especially internationally, can become very frustrating and time consuming for customers.

There are no surprises, therefore, when we hear the global manufacturing community call for consolidation. How do we, as suppliers, answer that call?

Foresight is invaluable. Try to predict exactly what form of consolidated industry your customers will want in 5 or 10 years and start moving in that direction now. At Gardner Aerospace in the early 2000s we tried to predict how the manufacturing industry was likely to evolve. We realized many smaller manufacturers would not survive as customers called for a more streamlined supply chain. So, we began a move to provide our customers – current and future – with a greater range of capabilities than we were offering at that time, including expanding through acquisitions. If manufacturing is a race, try to start a lap ahead of everyone else.
 

To buy or not to buy

For some companies, the best way to embrace consolidation will be mergers and acquisitions. Other companies may realize they are falling irretrievably behind and accept being acquired is the only way to survive.

At this point, it’s important to understand acquisition strategies should not be seen as aggressive moves to eliminate competition. Consolidation through acquisition helps to ensure a financially robust and sustainable industry, to the benefit of every party involved.

For example, Company A provides two products to a customer, and Company B enters the market, offering one of the products at a much lower price. Since Company A can competitively only offer the customer one product, the loss of sales proves unsustainable and the company folds. The customer no longer has a supplier of one of its key products, and the break in the supply chain might cause the customer’s own product to be delivered late. Company B can even incur the wrath of the customer for indirectly causing the collapse of the supply chain.

However, if Company B buys Company A, both firms can continue to trade. And, through synergies and economies of scale, the two companies could offer both products to the customer at a lower cost than previously. Intelligent acquisitions streamline and strengthen not only the supply chain but, by extension, the entire industry.
 

Already too late?

What if you already feel a lap behind? It is undoubtedly true that – in the aerospace manufacturing industry, for example – the push toward consolidation is an established trend that looks certain to continue for a long time. Put bluntly, small companies yet to embrace this fact may already be too late to prosper or even survive. But every company can act now in assessing the specific impact consolidation is having, and will have, on their particular sector of manufacturing. Every company can then form a plan.
 

Stay in touch

Do not lose the personal touch when managing remote locations. The Internet is a phenomenal asset but direct conversations help ensure a committed team of local managers around the country or, indeed, world. Organize regular meetings, by telephone or face-to-face, with all your local managers. While a company’s standards should be set by the senior management, there are limits to how effective centralized management can be in terms of day-to-day operations. Local management must uphold those standards.

Senior management should be set to receive as well as transmit. The most effective multi-location companies are always looking to share knowledge among facilities, not just broadcast dictates from headquarters. In pursuit of standardization, a good idea in one of your facilities is likely to be a good idea in your other locations.

Expanding to multiple locations, rather than sub-contracting, can ensure that your quality improvements are being implemented. Major customers and governing bodies will no doubt need to audit your facilities, but you should also train and deploy your own auditors.
 

Learn from legacy

Never be afraid to learn from other industries as you expand and run multiple locations. If you grow through acquisition, look at the processes already being operated by the companies you buy. Talk to the new team members. If you take over a company with a history of manufacturing, for example the automotive industry, can you apply best practice in that field to your own work, across all your locations?

Managing multiple locations does not need to be frightening. The goal of standardization across all facilities ensures regional and cultural differences effectively remain locked outside – inside the factory, processes are identical everywhere, from Poland to the U.K., from the U.S. to India. Labor costs, on the other hand, are not identical, which means savings made in low-cost markets can be passed to the customer. Everybody wins.

 

Gardner Aerospace
www.gardner-aerospace.com


About the author: Nick Guttridge is the executive vice president for business development at Gardner Aerospace. Guttridge can be reached at pr@gardner-aerospace.com.