Borrowing a tactic from the automotive industry, SMS Plastics Technology wants its suppliers to give back 7 percent retroactive rebates, plus discounts for goods it plans to buy in 2004 and 2005. The rebates would go to units of the Meinerzhagen, Germany, company that make Battenfeld injection presses, Battenfeld Gloucester film equipment and American Maplan and Cincinnati-brand extruders.
The company wants rebates on goods purchased since mid-2002.
Steffen Burghoff, who became the new top SMS official Sept. 1, confirmed that the letter went out to all ``dedicated suppliers,'' meaning ongoing suppliers of parts, products and services.
``It's a way to basically get suppliers to discuss with our partner companies the ways to reduce costs. And we also want to challenge our partners, because cost reduction will be a continuous program at SMS Technology group,'' he said in a Sept. 26 telephone interview. ``We ask our suppliers to get to the table with us and discuss options.''
The machinery operations sent out form letters to suppliers earlier this month. ``The economic situation continues to be under pressure and the market for our products seems to be recovering slowly,'' the letter said.
``Additionally, according to our sales forecast, there will be a moderate market recovery with only slight increases in sales volumes for 2004 and 2005. We would, therefore, like you to contribute this same level of additional discount on our purchases from you for the duration of [2004 and 2005],'' the letter said.
Automakers, and then some Tier 1 automotive suppliers, caused a firestorm of controversy when they tried to wrestle retroactive rebates from suppliers in recent years. That could happen with the SMS proposal.
Two suppliers to Battenfeld Gloucester Engineering Co. Inc. said they told the maker of film equipment in Gloucester, Mass., they would not play ball.
John Walsh of Norfolk, Mass.-based Walsh Engineering, got the form letter. He shot back a letter of his own. ``The answer to your request is NO,'' he wrote.
Walsh said he has done product design for the company for a dozen years, including work on a shrink-wrapping gun used to apply the protective wrap to boats. In his own response, he said he will not be doing business with Battenfeld in the future, saying: ``We are not a bank.'' Instead, he asked for his own giveback of 14 percent ``due to all the tardiness of your payments.''
Peter Cloeren, president of flat die maker Cloeren Inc., said Gloucester telephoned him, rather than sending him the form letter. He rejected the request.
``I think that, in today's environment, buyers and suppliers need to work under a constructive umbrella to reduce costs. But to ask for retroactive rebates, it's unprecedented in my experience,'' he said.
Burghoff, executive manager of SMS AG, the holding company of SMS Plastics Technology, said he could not say how many letters went out. He said leaders of the company's supply chain management team made the initiative.
He said SMS wants to retain good ties with suppliers, even as it discusses pricing. ``These are suppliers we have had partnerships with for years,'' Burghoff said.
Rick Thomas, vice president of Battenfeld's CMG granulator business in Newport, N.H., said machinery makers use various ``business tools'' to improve operations, including year-over-year price reductions.
``It's a tough economy. Business is down. People are trying to do whatever they can to keep themselves healthy,'' he said.
Thomas said some suppliers have told CMG they will work with the company on pricing. Some suppliers have suggested ways to improve the production process, he said.
``I look at this process as a win for our company,'' Thomas said. ``We're going to have some difficult conversations, but a lot of opportunities can come out of this.''