Successful Strategies for a Changing Materials Market
You have the perfect raw material blend for your slip casting operation. You’ve worked closely with your materials supplier over the last few years to develop this unique, customized formulation, and you consider the technical sales rep to be a close ally in your manufacturing process. You know each other on a first-name basis and often inquire about each other’s families during phone calls and visits.
Then one day you discover that the supplier is being acquired by a much larger corporation. Will your sales rep be laid off? Will your customized material blend be discontinued? Will you be given the same level of personalized service, or will you get lost in the shuffle? What does this mean for your company?
Over the past several decades, many ceramic manufacturers have had to face these and other questions as numerous small, family-owned materials suppliers have succumbed to the increasing pressures of a global economy and a shrinking U.S. manufacturing base. Such changes can bring both positive and negative aspects to your business—but it’s important to remember that you don’t have to be a helpless bystander. By taking an active role in the process, you can help ensure that your company will continue to get the products and services it needs to make a quality product.
Assess the SituationIn January 2003, Franklin Industries, a prominent producer of chemical grade limestone headquartered in Nashville, Tenn., acquired H.C. Spinks Clay Co. Inc., a leading supplier of ball clay products headquartered in Paris, Tenn. This acquisition was just the latest in a long line of acquisitions in the clay industry by larger corporations, and it left many ceramic manufacturers feeling anxious. But Franklin’s goal wasn’t to change the way H.C. Spinks does business—it was simply to improve on it.
“As a larger company, we have larger financial resources. We also have broader engineering and technical support overall, and a history of supporting technical developments for the benefit of our customers,” explains Nelson Severinghaus, president of Franklin Industries. “It’s our full intent to take what Spinks already had, which was good, and simply support it and add all of our abilities to that. For instance, we have a transportation department; Spinks didn’t. As a result, we can provide customers with better service on everything related to transportation. We also have a corporate, coordinated accounting system that might make business transactions a bit smoother. And we’re providing the support Spinks needs to develop some new clay products.
“All of the things that Spinks might not have been equipped to handle by itself as a small company, we can now step in and handle,” he says.
Despite being a larger company, Franklin prides itself on having a small-business, customer-oriented mentality. “We are privately held, and we believe in treating our customers and our employees fairly and doing business honestly. Spinks has that same mentality, so we see this as a really good marriage,” says Severinghaus.
But how can ceramic manufacturers know that an acquiring company truly has the customers’ best interests at heart?
According to Carl Frahme, a consultant with more than 35 years of experience in the ceramic industry, a little research can go a long way in helping you assess the situation. “When you see that an acquisition is about to take place, it pays to do some research and find out as much as you can about the company that’s doing the acquiring. You should also talk to them to find out what their intentions are and to ensure that their goals in the marketplace are going to fit in with your needs as a user,” he advises.
Build Solid RelationshipsIn today’s challenging economic environment, it can be tempting to focus solely on the bottom line and source your raw materials from the cheapest supplier. Likewise, suppliers are often pressured to try to get the best possible price with the least amount of effort. But, says Frahme, instead of treating each other as adversaries, customers and suppliers need to work together to build strong relationships.
“I’ve always found that if you work hard at building a solid relationship with a supplier—treat them well and expect to be treated well in return—it really pays off from a business standpoint,” he says.
This is especially true when an acquisition occurs. “Building new relationships is never easy, but you have to be willing to do that” if you want to ensure that your company continues to get good service from the acquiring supplier, Frahme says.
According to Severinghaus, communication between both parties is key to ensuring a smooth transition and building a solid relationship. “Customers need to tell us what they want or need so that we can meet those needs. Likewise, we as a supplier need to communicate to the customer where we’re coming from or what, if any, problems we might have. This type of communication is extremely important,” he says.
Once a relationship has been established, be sure to respect that relationship and realize that the way your company does business also affects your suppliers, advises Frahme. Switching to the “cheapest” raw material without considering the material’s quality or the supplier’s reputation can have a detrimental impact on your company—and on the industry as a whole over the long term, as suppliers are forced to reduce their own profitability or simply close their doors.
“You also need to be sure to make your payments on time, and if you have special financial needs, you need to give as much notice as possible and try to work with your supplier as much as you possibly can. Additionally, when you’re looking for extra services, you have to expect to pay more,” Frahme says.
Be Willing and Able to ChangeIf your company has been proactive in learning about the acquiring supplier and trying to establish a good relationship with that supplier, everything should work out perfectly, right? Not necessarily, says Frahme. In some cases, the larger acquiring company won’t be willing to provide the customized products you had been getting from the smaller company. “They might want to give you something that’s more generic that they can offer to everybody, and they might be reluctant to process small, short-run orders,” he says.
If you discover that your supplier will no longer be able to meet your needs as a result of the acquisition, you need to be willing and able to look for an alternative. “When you’ve been successfully using a certain raw material in your plant, it can be very difficult to change. Extensive tests will need to be run on any new materials, and you’ll have to take the time to establish a relationship with the new supplier. But it’s much better to be in a position where if worse comes to worst, you can make a change,” Frahme says.
No one wants to hear that their supplier is being acquired by another company. But such acquisitions and mergers are an inevitable part of doing business on a global scale. “Spinks is a classic example of a good smaller company. They were doing their job well, they have good people and a wonderful corporate culture—they’re the kind of company everyone wants to work for,” says Severinghaus. “Yet they were at the point where if they were going to grow significantly, they needed new capital, and that was going to be hard for them to obtain. Either a company has to be growing on its own, or it’s going to find that it has difficulty competing with much larger companies.”
By merging with a larger company, suppliers can receive the financial support they need to better serve their customers. But there’s also the danger that the larger corporation will force changes in the company’s product offerings and/or service capabilities. By researching the acquiring company, trying to build solid relationships with that company, and being prepared to change to a new supplier if necessary, ceramic manufacturers can limit the impact that such acquisitions and mergers have on their businesses.
“There are both good and bad aspects to the increasing acquisitions—it’s not all bad or all good. But it’s a trend that’s going to continue, and ceramic manufacturers have to learn how to deal with it,” says Frahme.
For more information:For more information about Franklin Industries, contact Franklin at 612 Tenth Ave., North, Nashville, TN 37203; (615) 259-4222; fax (615) 726-2693; or visit http://www.frankmin.com.
Carl Frahme is president of Frahme Consulting Services, Inc. and can be reached at 11765 Lone Desert Dr., Reno, NV 89506; phone/fax (775) 677-0761 or (866) 880-4480 (toll-free); e-mail email@example.com; or http://www.frahme.com.