Cover Story: Survival instincts

It’s almost become a clich in the plastics industry: Supplying the automotive industry is a tough way to make a living. The margins are too tight, the demands too many. The only way a company can survive in such a business environment, the thinking goes, is to be bigger, mightier and more powerful than your competitor.

Sure enough, professing to see the handwriting on the wall, some small- to medium-sized molders have decided to leave the automotive market. Many more have opted to increase the proportions of business in other markets such as electronics or consumer goods. Yet, not everyone supplying the automotive industry is a Magna or Textron. More than a few smaller and mid-sized Canadian molders still call the automotive market their main business. What are these companies doing to survive the automotive pressure cooker and what are their long-term prospects and plans?

TAKING OUT HIDDEN COSTS

Hunjan International Inc.’s business is 90 percent automotive based. The company has been riding a steep growth curve since 1996, when it moved into its injection molding and tool making facility in Markham, ON. Hunjan has 34 injection molding machines ranging from 40 tons to 3000 tons in its Markham facility; as well has an additional 23 presses (40- to 1500-ton) at its Waterloo, ON plant. It recently acquired a third facility this summer in Waterloo, ON. Additionally, the company is expanding to the U.S. with a new plant in Anniston, AL coming on stream by March 2002.

All Hunjan’s plants are geographically close to key customers, thus reducing transportation costs. It is one small example of the way in which cost reduction efforts are built into the company’s operating practices, says Baljit Sierra, executive vice president.

“We hold continuous improvement/profit meetings on a regular basis to evaluate current programs, cost reduction and profitability,” he says.

Hunjan has a flexible strategy for quoting new business. If a part’s targeted price is below acceptable margins or below manufacturing costs, Hunjan will negotiate with the customer by suggesting ways to improve design, or add value. In this case, customer and supplier attempt to reach a middle ground on process/price curve that improves the efficiency and profitability of both.

If the customer declines to negotiate on price, Hunjan will convene its engineering and manufacturing staff to brainstorm ways of lowering the cost of manufacturing the part as quoted. This may involve installing automation such as end-of-arm tooling or conveyors, finding ways to reduce cycle time and improving efficiencies of a work cell.

“You have to have strong engineering and full-service capabilities to survive in this market,” says Sierra. “The other thing that gives us an edge over the competition is our tool room. We do 100 percent of our tooling; it’s a very important resource for us.”

Bala Nagothu, president of Tri-Star Plastics in Toronto, also confirms that the ability to analyze and take out costs from a project is an essential survival skill for automotive suppliers.

“One customer said ‘give me a part for 19 cents’,” Nagothu relates. “I said no, it takes me 23 cents to make it. We looked into it and found we could use a different material and make some design changes to the tool that took 37 percent (about 8 cents) out of the cost of manufacturing the part.”

AVOIDING PRICE WARS

“It all comes down to competitive strategy,” says Nagothu. “We don’t compete on price, we compete on adding value and building long-term relationships.”

Approximately 45 to 50 percent of Tri-Star’s business is automtoive. Nagothu says the company’s goal is to be a strategic partner with a customer, not just a supplier.

“We don’t bid on 20 or 30 jobs just because they’re out there. Companies that do business this way don’t have a chance to develop technologies and skills that bring value to the product.”

This philosophy, which the company has used since its founding in 1994, is apparently working. With revenues increasing at double-digit rates in recent years, Tri-Star has grown to 80 employees and filled its 54,000 sq. ft. facility with 24 machines ranging from 60- to 2000-tons in clamping force. It is currently searching for another building with approximately 60,000 to 70,000 sq. ft. of floor space. Nagothu says he is planning on putting 20 to 25 large machines, ranging from 750- to 2500-tons, in the new building.

Nagothu says he has turned down business from General Motors that was not profitable. On the other hand, he notes, Tri-Star has helped the company at times by taking on work done by other suppliers that have gone out of business.

“We can negotiate because we can bring something to the table — design, assembly, cost reduction. Programs that come to us are programs that need our capability.”

BUILD RELATIONSHIPS, DIVERSIFY

Hunjan’s Sierra makes an important, sometimes forgotten point: Cost trimming efforts can cut both ways. If a supplier’s major customers can mandate cost cuts, and in some cases give-backs from work already done, it is reasonable that the supplier can ask its suppliers for price reductions.

“For customer give-backs, such as the three-percent that Chrysler asked for, we worked with our materials suppliers, and our packaging suppliers, to pass those costs down, much like the automotive OEMs do to their suppliers.” Sierra says that in return for this kind of cooperation, Hunjan has established long-term business relationships with some of these suppliers.

More small- to medium-size molders are also recognizing the strategic strength that a diverse mix of product lines and markets can provide. ATS Automation Tooling Systems, Precision Plastics Components Div., Cambridge, ON, has built a strong reputation as a molder of precision parts primarily for the auto industry. The company has recently moved to expand its market into the medical and consumer areas (see news story, p. 7).

“We’re still 90 percent automotive, but we’ve obtained some significant new business in non-traditional areas for us,” explains Brian Dyet, general manager.

Nagothu says diversification into consumer, appliances, hardware, furniture and other areas has helped solidify Tri-Star’s important automotive business. “As a small-medium size molder we have learned not to be dependent on any one customer. If you are not in a position to tell a customer no, you’re in trouble.”CPL

Baljit Sierra (left) and Bal Hunjan have succeeded in growing Hunjan International from one to four plants in a little over 5 years.