M & A 101: Lessons Learned from Decades of Deals – May/Jun 2022

Supply Chain Nightmare  

by Loren Smith

Loren Smith – Blue Valley Capital

Now into our third year of the pandemic, we would think the harness component supply chain challenge would have been resolved. Not so. Severe parts shortages continue to cause constant schedule disruptions for harness makers, resulting in daily expediting and non-stop shuffling of customer schedules to avoid putting customer production lines down.

Exacerbating the nightmare, component suppliers are raising prices––with no notice or justification.

So, we could lick our wounds and console ourselves with the knowledge that supply chain issues have been creating chaos in countless industries, but our industry often confronts an additional hurdle: When harness customers dictate component sources for harness makers, the leverage that normally exists in customer/supplier relationships dissolves because many component suppliers do not treat harness makers with the respect normally found in customer/supplier relationships.

I learned this years ago as a new entrant into the wire harness community. When a salesperson from Packard Electric (now Delphi Packard Electric Systems) first called on me, he read me his company’s rulebook. In detail. I was flabbergasted at the “power imbalance.” And here I thought I was the customer.

Over the years that I owned and ran a harness company, my depth of experience did not make much of a dent in this lack of leverage. I still bear a scar from the disaster when my customer, a sizable construction equipment manufacturer, specified a major connector supplier that then failed to deliver product. But this deeply flawed business model might be about to change.

Like many changes the pandemic has accelerated, wire harness manufacturers are now often provided sourcing authority for the components that go into the wire harnesses they produce. As this stride grows, it will gradually eliminate the frustration of having to tolerate a supplier with chronic delivery issues and unsupported price increases.

This shift is not widespread yet, and the supply chain nightmare is still suffering the consequences of the pandemic, but brighter days appear to be on the horizon. Meanwhile, know that you have many peers who feel your pain.