ATLANTA — For contract molders, the formula sounds so simple — focus on a few markets, forge strong relationships with big customers as the single-source supplier, then stand back and watch the cash flow in!
Unfortunately, it's not that easy. But speakers during an Antec '98 panel discussion in Atlanta argued that contract manufacturing, done right, can provide much steadier, more profitable business than do-it-all custom molding. Doing it right means a continuous investment in new plastics technology and a top-down commitment to quality, they said.
The April 27 session featured energetic speakers from molders Precise Technology Inc. and Mack Molding Co.; rapid tooling and prototyping house Papago Plastics Inc.; resin supplier GE Plastics; and Ethicon Endo-Surgery Inc., the fastest growing division of medical giant Johnson & Johnson.
Contract manufacturing is a challenge.
``We want tooling in two weeks — not four weeks, not six weeks, not eight weeks,'' said Robert Alvarez, consulting plastics engineer at Cincinnati-based Ethicon Endo-Surgery. ``Every one of our molders is associated with a rapid-prototype tool house.''
Alvarez sounded like a man in a hurry. And he is — slashing Ethicon's stable of molder suppliers from the current 38. ``By the end of the year, we're going to have six molders,'' he said.
When that happens, each molder becomes a critical partner, said Stefan Rasch, business unit director at Mack Molding of Arlington, Vt. ``The supplier makes or breaks the entire thing,'' he said. Original equipment manufacturer customers ``want somebody who can do, literally, everything.''
Why the rush? Alvarez cited the mantra of the '90s — shorter product-development lead times. Three years ago, firms took two or three years to design and manufacture a new product. That's down to six months today, he said.
Demands on suppliers are increasing. At Ethicon, Alvarez said: ``We are not going to manufacture. We are going to design and we are going to sell. We do assembly [now], but five years from now we probably will be out of the assembly business. We have already asked our molders to do more of the assembly in their plants.''
Contract manufacturing has a healthy future, said Raymond Veno of Precise Technology, based in North Versailles, Pa. near Pittsburgh. He pointed to original equipment manufacturers reducing their supplier base coupled with a plastics molding industry that remains, even after consolidations, highly fragmented.
Veno said each Precise molding factory focuses on a specific market, such as packaging or health care. He suggested that firms make even-more-specific decisions: short run vs. long run, commodity resins or engineering resins.
Bigger players can make stronger players. Precise more than doubled its sales in 1996 when it purchased the Tredegar Molded Products unit of Tredegar Industries Inc. But Veno, vice president of continuous improvement, told the Antec audience that attitude is just as important.
``There's got to be a passion on the part of the management team, and you've got to know your business,'' he said.
When a molder does link with a giant OEM, the business can be staggering. Two weeks before Antec, Boston-based Gillette Co. unveiled its new, three-blade Mach3 razor. Precise is the single, worldwide supplier of packaging trays for the shaver, Veno said.
For the project, Precise installed nine Sumitomo injection presses, five with 350 tons of clamping force and four 260-ton presses, he said.
Five years ago, another Precise plant started molding the container for another huge-volume consumer product, Pampers Baby Wipes, on eight Netstal machines using stack molds.
Both operations are highly automated.
Veno also said molders have to stay aggressive on pricing. If resin prices go up, the molder must pass it along. ``Do not absorb the first increase. You'll never get it back,'' he said.
Veno also showed how price cuts, demanded by OEMs, can eat away already-slim profits at a molding company.
He also warned about ``hidden price decreases,'' such as a molder accepting mold amortization to win a key job. ``If that program goes belly up, then you've risked the farm,'' he cautioned.
Mack Molding's Rasch said a molder must ``balance the cost of quality'' by knowing what a customer values as ``quality.'' Is it timely delivery? Reliability?
Ethicon's Alvarez said OEMs can be tough, but he stressed that, in the long-term, beating up on a molder is poor business. Trust is essential on both sides, he said.
``It takes two or three years to develop these relationships. This does not happen overnight,'' Alvarez said.
Blair Souder, manager of injection molding programs at GE Plastics, said demand for short lead times is shifting some business away from plastics.
``The plastics industry is now starting to lose to sheet metal strictly on the time-to-market,'' Souder said. Sheet metal tools can be made quickly, while molds for injection molding still have ``an element of uncertainty,'' he said.
Souder said the computer industry is moving toward ``one-stop shopping,'' or a single supplier that can do molding, form sheet-metal parts, make circuit boards, even do final assembly. Other industries could follow.
Souder said molders that want to get into the contract game have to make a choice: Do it all, one-stop shopping style, or narrow down their focus.
After the speakers recited buzzwords like ``world-class molder,'' ``continuous improvement'' and ``virtual supplier,'' David Bank, president of Papago Plastics, raised some controversial issues.
Bank asked: When OEMs outsource all production to suppliers, who is liable when a product fails?
``The more pressure that is put on the `virtual company,' the litigation issue ... has to be dealt with,'' he said.
Papago Plastics of Rochester, N.Y., makes fast-turnaround aluminum molds and does short-run molding. Bank noted an ``experience gap'' by OEM product designers, which have let go skilled people well-versed in molds.
``You now have someone — an incompetent — sitting at a $50,000 piece of [computer-aided-design] equipment that is supposed to make these wonderful parts. That's BS,'' he said.
Bank knows it is futile to question this, but he said molders have to come up with a way to make these designers shine, anyway.
His solution: gas-assisted molding, which he said is more forgiving.
``I believe gas-assist will be one of the things that will begin to make heroes out of these incompetent people,'' Bank said, as the audience laughed.