For many years, becoming vertically integrated was all the rage. After all, it was thought you could control your costs and scheduling to meet any challenge your customers threw at you. You marketed your company that way and attracted a lot of attention and grew your business substantially. Money was cheap (sometimes) and times were good. You were in control of your company's destiny.
Pretty soon money started to get a little expensive and accounting practices changed. Needs shifted, and you put off capital projects. “Maybe next year we can get those new presses,” you said, or, “Maybe next year we can bring in that new resin vacuum system.”
Next year never came. And then, the dreaded “R” word started raising its ugly head. Your sales started to slip, but you were convinced you could hold on. Your accountants and shareholders started putting pressure on you to reduce your staff. But you had already made cuts in every department.
And then it was clear that the recession was deepening and you needed to take drastic steps to hold on to what little your company had. All of a sudden, “getting back to core competencies” became the new business buzz phrase. It made sense. Did your company achieve greatness because it was vertically integrated? Probably not. If you look back, you may find it was your product design, development, marketing and distribution capabilities.
How were you going to get that greatness back? It meant making some tough but necessary decisions. It meant quickly researching manufacturing service companies to determine who was fiscally strong enough and had the expertise to take over your internal operation. Who would you feel comfortable with to transfer your molds and dies without disrupting your production? Who had the capabilities and the experience in dealing with massive transfer programs?
So you sent your engineers and buyers on a quest to find such a company, and you came up with prospects. You conducted audits and made your choices. In some cases your newly chosen suppliers were able to take on some of your soon-to-be displaced employees.
Some who are reading this are recounting the exact experience they went through in recent times. Most will express a sigh of relief, happy that they took those steps necessary to regroup. Others may be in the midst of such a struggle.
Over the past several years, with the declining economy and manufacturing moving overseas, I have seen many companies decide to get back to their core competencies after it was too late. Many of those companies are no longer with us, or are truly shadows of their former selves.
Vertical integration is truly not all it is cracked up to be. Getting back to core competencies could mean your company's survival. In other words, do what you do best!
Milgram is executive vice president of Topcraft Precision Molders Inc. of Warminster, Pa.
