The climate that confronts small suppliers working or aspiring to work with original equipment manufacturers is full of uncertainties. This is evidenced by the increasing number of acquisitions, plant closings and bankruptcies, and the proliferation of ads for ``machine time available.''
The invasion of overseas suppliers accelerates, while several mammoth U.S. suppliers are taking over smaller competitors here and abroad.
We have entered the era of the global market and are moving into a phase in which global OEMs no longer want to be bothered by multiple local suppliers. This situation has the attention of small suppliers, and they are worried.
Some years back, the preoccupation was with the one-sided view of purchasing gurus such as Jose Ignacio L¢pez de Arriortua: that annual price reductions, stabilization and standardization of procedures and processes control would bring suppliers and their OEM customers closer.
Today, many suppliers realize how many of the relationships, sometimes referred to as ``partnerships,'' are indeed precarious. It appears that even with large-scale suppliers, OEMs tend to shy away from long-term commitment.
So what avenues remain open to small suppliers? They may:
Join the league of Tier 1 or 2 players and try to establish themselves as system suppliers. They will need to invest heavily into product (systems) development, research, technical sales and product testing, and work for two or three years with the hope of securing large contracts that may never materialize. System suppliers, unless they already have proven products and proprietary technology backed by a competent technical support team, are never assured of getting the contract award for a model. Improving the odds requires excellent business planning and program control, and a reality check of the whole decision-making process.
Acquire an established system provider with special key processes, manufacturing facilities or capacity; expertise in certain operations or technologies; well-developed up-to-date information technology systems; or simply the capital needed to finance growth.
Select a components-manufacturing niche that gives them an edge in price or quality.
Build strength by cooperating with competitors faced with the same dilemma. Combined efforts can increase geographic presence and purchasing advantages.
Consider selling the company while there is something left besides physical assets, and while the company still shows a profit and sales-growth trend.
Operate in a survival mode. This risky approach — which may require additional capital that is difficult to secure — should be contemplated only if it is accompanied by a serious, clinical analysis (no emotions, please) and by an action plan with a precise timetable and check points.
Gochtovtt is president of MGA/ Compuman International Inc. of Fort Wayne, Ind.