M & A 101: Lessons Learned From Decades of Deals July/Aug 2019

A Component Nightmare 

By Loren Smith

Ask me to describe the most frustrating, frenzied day in all my years owning and operating a wire harness company, and I will have an immediate response: the day every single plant manager of a multinational manufacturer of construction equipment was calling me and venting. That’s because the absence of my wire harnesses had caused shutdowns of their production lines. Here’s my cautionary tale.

The roots of the nightmare had actually been planted some years before when this leading manufacturer of construction equipment (we’ll call them “Co. A”) decided to specify one supplier (“Co. B”) of connectors and terminals for all future designs. This seemed like a good idea. Co. B had a complete product line that appeared to be an excellent fit for Co. A’s construction equipment industry applications.

What ensued, however, was a classic case of bureaucratic incompetence. Shortly after we began purchasing the components from Co. B, we encountered delivery issues––followed by a Co. B management change. One would hope the new management team would acknowledge past delivery problems and promise to effect changes to enable them to catch up and meet future demand with on-time deliveries, right? They did acknowledge and promise (while blaming past delivery delinquency on the management team they had replaced).

Unfortunately, despite the personnel changes, chronic delivery failures continued over the years, creating an ongoing operational challenge. (Not until Co. A replaced Co. B with a competent supplier was the issue finally resolved––but that was long after my frantic experience.)

So, my nightmare was twofold. First, needing to explain to exasperated plant managers that their lines are down because their company sourced a supplier, who, despite receiving adequate lead time, failed to meet a delivery commitment is not a comfortable conversation. Especially when the conversation keeps getting repeated throughout a very long day. Second, I was caught helplessly in the middle. As much as I wanted to, I was unable to say the magic words: “You’ll get your harness today.”

But now, the good news:

  1. These days, more harness components are available from distributors than in the era of my nightmarish day. That change removes a major challenge the harness industry formerly dealt with.

We can draw valuable lessons from this tale. In addition to being grateful for today’s sizable number of distributors, companies can invest in safety stock. Although purchasing from distributors may add cost––and spending on safety stock comes at a price––those considerations pale against the risk of putting your customer’s line down. That can cost you a customer or even your business.