DRIVING INNOVATION AND ABILITY TO COMPETE THROUGH OUTSOURCING

1
bernardo
bernardo
DRIVING INNOVATION AND ABILITY TO COMPETE THROUGH
OUTSOURCING
Anthony (Tony) C. Bernardo, Alloy Polymers Inc.
NPE 2003
2
TOPICS OF DISCUSSION

• INTRODUCTION
• BENEFITS OF OUTSOURCING
• WHY OUTSOURCE
• OUTSOURCING STRATEGIES
• WHAT IS IMPORTANT IN SUCCESSFUL OUTSOURCING
  RELATIONSHIP
• RELIABILITY
• QUALITY
• CONFIDENTIALITY
• SERVICES OFFERED
• VALUE

3
A Contract Manufacturer Plays a Key Role In The
Supply Chain
INTRODUCTION
Captive Compounder
Resin Manufacturer
Contract Manufacturer
Concentrate Supplier
Additive Supplier
Custom Compounder
Fabricator/ OEM
Fabricator Owned Cmpd.
All are contractors possible clients or customers
4
Contract Manufacturers typically interact with
the Resin, Concentrate, or Additive Manufacturer
and the Fabricator
INTRODUCTION
Resin Manufacturer
Contractor Manufacturer
Concentrate Supplier
Additive Supplier
Fabricator
5
THE PLASTICS INDUSTRY DYNAMIC AND EVER CHANGING
INTRODUCTION

• Resin suppliers have been, and continue to, go
  back to their core competencies
• Fewer and fewer materials can be engineered in
  the reactor
• The marketplace continues to demand unique
  materials and properties.
• Innovation drives continued market growth!

6
I - BENEFITS OF OUTSOURCING

• WHY OUTSOURCE?
• OUTSOURCING STRATEGIES

7
WHY OUTSOURCE?
WHAT IS THE OBJECTIVE OF YOUR BUSINESS?

• RESPONSIVENESS TO CUSTOMERS AND PROSPECTS
• COST CONTROL AND PRODUCTIVITY
• INNOVATION TO MAINTAIN COMPETITIVE EDGE
• EMPLOYEE SATISFACTION AND SAFETY
• ORGANIZATION AND PRODUCT QUALITY

8
WHY OUTSOURCE?
THE RESULT OF ANY OUTSOURCING RELATIONSHIP SHOULD
BE

• HIGHER RETURN ON INVESTED CAPITAL
• AND/OR
• INCREASED ABILITY TO INNOVATE AND COMPETE

9
THERE ARE MANY SITUATIONS WHERE OUTSOURCING TO A
CONTRACT MANUFACTURER IS THE SOLUTION
Why Outsource?

• Client is out of capacity.
• Client does not possess manufacturing assets.
• Products are difficult to manufacture.
• Products are low volume or require special
  expertise.
• Products do not cover fixed costs of equipment
  required for manufacturing, but cannot be
  dropped.
• Products are not considered core.
• Products that can bring higher value if sold by a
  second party.
• Products that can create higher marketplace value
  for both parties if manufactured and sold by a
  Service Provider.
• Products that are more profitable if sold to the
  customer without value added manufacturing steps.

10
WHY OUTSOURCE?

• CLIENT IS OUT OF CAPACITY OR CLIENT DOES NOT HAVE
  MANUFACTURING ASSETS
• CONTRACT MANUFACTURER NEEDS TO OPERATE WITH
  EXCESS CAPACITY AND
• HAVE ESTABLISHED RELATIONSHIPS AND TECHNOLOGY
  EXPERIENCE WITH CLIENT AND
• DEDICATED MACHINE TIME

11
WHY OUTSOURCE?

• CLIENT HAS PRODUCTS THAT ARE DIFFICULT TO
  MANUFACTURE, REQUIRE SPECIAL EQUIPMENT, OR ARE
  NOT STRATEGICALLY CORE PRODUCTS
• EQUIPMENT AND TECHNOLOGY TO PRODUCE A WIDE
  VARIETY OF PRODUCTS AND ADDITIVES.
• AN EFFICIENT COST STRUCTURE

12
WHY OUTSOURCE?
PRODUCTS THAT CREATE MORE VALUE IF BOTH
MANUFACTURED AND SOLD BY A FULL SERVICE PROVIDER

• LATE LIFE CYCLE PRODUCTS
• EARLY LIFE CYCLE PRODUCTS NOT WITHIN THE CLIENTS
  CORE FOCUS
• SPECIALTIES THAT ARE DISRUPTIVE OR LOW VOLUME

13
WHY OUTSOURCE?
PRODUCTS THAT PROVIDE GREATER VALUE IF SOLD BY
CLIENT WITHOUT VALUE ADDED STEPS

• CLIENT WANTS TO FOCUS ON NEAT RESIN SALES
• CONTRACTOR CAN ADD VALUE AT A LOWER OVERALL COST

14
ROLE OF A CONTRACT MANUFACTURER IS TO MEET THE
NEEDS OF BOTH THE CLIENT AND THE CLIENTS
CUSTOMERS
Outsourcing Strategy
Clients Existing Products
Clients New Products
Clients Existing Customer
Clients New Customer
15
PRODUCTIVITY INCREASES ARE ACHIEVED BY
OUTSOURCING LOW OR DISRUPTIVE VOLUME
Outsourcing Strategy
High Volume Products
Low Volume Products
High Volume Customer
Low Volume Customer
16
Outsourcing Strategy
Profitability Can Be Increased by Focusing on
Core Business and Outsourcing Supportive Business
CORE BUSINESS
80
CUMULATIVE PROFIT
LOWER VOLUME OR DISRUPTIVE PRODUCTS MAY OFTEN
SUBTRACT FROM OVERALL PROFITABILITY MUST GROW TO
CORE OR BE PRODUCED/SOLD MORE EFFICIENTLY

NORMALLY, 80 OF A BUSINESS PROFIT COMES FROM
ONLY 20 OF ITS PRODUCT LINE.
20
NUMBER OF PRODUCTS IN PRODUCT LINE RANKED BY
CUMULATIVE VOLUME OF PRODUCT.
17
Outsourcing Strategy
RETURN ON CAPITAL DEPLOYED CAN BE SIGNIFICANTLY
INCREASED
CAPACITY
AS PRODUCTION LOT SIZE IS INCREASED, THE
EFFECTIVE CAPACITY OF A PLANT WILL INCREASE DUE
TO INCREASED EFFICIENCY AND DECREASED DOWN TIME
PRODUCTION LOT SIZE
18
Outsourcing Strategy

• COST PER UNIT DECREASES SIGNIFICANTLY AS
  PRODUCTION LOT SIZE INCREASES.
• HIGHER YIELDS
• HIGHER PRODUCTIVITY
• HIGHER EFFICIENCY

UNIT COST
PRODUCTION LOT SIZE
19
Outsourcing Strategy

• BY UTILIZING A CONTRACTOR INTERNAL RESOURCES ARE
  FOCUSED ON
• INNOVATION
• COMPETITIVE ADVANTAGE AND FLEXIBILITY
• MARKET GROWTH.

20
Outsourcing Strategy
Incremental Growth Augmented with Step Function
Growth will Dynamically increase the Growth Rate
of the Business.
A CONTRACTOR CAN PROVIDE RESOURCES TO ACHIEVE
STEP GROWTH

TIME
21
II - WHAT IS IMPORTANT IN ESTABLISHING AN
OUTSOURCING PARTNER
Partnership

• STRATEGIC PARTNER
• RELIABILITY
• QUALITY
• TECHNOLOGY
• SERVICES
• VALUE

22
Partnership
STRATEGIC PARTNERSHIP

• A CONTRACT MANUFACTURER NEEDS TO BE CONSIDERED A
  STRATEGIC PARTNER AND NOT ONLY AN OPPORTUNISTIC
  OR EMERGENCY PARTNER
• A CONTRACT MANUFACTURER NEEDS TO BE AN EXTENSION
  OF A CLIENTS INTERNAL MANUFACTURING FACILITIES.

23
Partnership
STRATEGIC PARTNERSHIP
IN SEEKING A CONTRACTOR, THE CLIENT NEEDS TO
CONSIDER NOT ONLY CAPABILITIES, BUT ALSO THE
CONTRACTORS VALUES AND COMMITMENT
24
Partnership
RELIABILITY

• DELIVERS ON TIME
• MEETS ALL PRODUCT AND PACKAGING REQUIREMENTS
• FULL SUPPLY CHAIN CAPABILITY INCLUDING CLIENT
  COMPATIBLE SOFTWARE
• FOCUSED ON MAXIMIZING YIELD AND MINIMIZING COST
  TO CLIENT

25
Partnership
QUALITY

• FULL QUALITY CERTIFICATIONS SUCH AS ISO 9002, QS
  9000, UL OR OTHER REQUIRMENTS MUST BE PROVIDED BY
  THE CONTRACTOR
• FULL TESTING CAPABILITY, A2LA CERTIFICATION

26
Partnership
TECHNOLOGY

• EXTRUSION AND AUXILIARY EQUIPMENT
• SPECIAL TECHNOLOGY SUCH AS COLOR, FDA/CLEAN ROOM,
  ADDITIVES.
• MASTERBATCHES

27
Partnership
SERVICES

• FULL SUPPLY CHAIN MANAGEMENT CAPABILITY- FROM RAW
  MATERIAL PURCHASE TO SHIPPING
• ABILITY TO HANDLE ALL PACKAGE SIZES INCLUDING
  BULK RAIL
• ABILITY TO SERVICE CLIENTS CUSTOMER WITH SALES
  AND TECHNICAL SERVICE

28
CLIENTS EXPECTATIONS OF A CONTRACT MANUFACTURER
Source Alloy Polymers Research of Prospects and
Customers
29
Partnership
IN CLOSING, THE CONTRACTOR NEEDS TO BE CAPABLE OF
THE SAME OR BETTER STANDARDS THAN THE CLIENT
EXPECTS FROM THEIR OWN OPERATIONS.

• STRATEGIC PARTNER
• RELIABILITY
• QUALITY
• TECHNOLOGY
• SERVICES
• VALUE

CONFIDENTIALITY
30
Partnership
SHARED VISION AND COMMON GOALS MUST GUIDE THE
RELATIONSHIP.
31
Partnership
COMMITMENTS
Clients Commitments
Our Commitments

• To meet agreed upon performance output, quality,
  yield, delivery, cost, and service
• To practice partnership with our clients and
  customers
• To provide state-of-the-art technology, know-how,
  and innovation
• To provide safe secure jobs and a promising
  future for all of our diverse employees
• To embrace the concepts of continual
  transformation and extraordinary customer service

32
Partnership
A Contractors model to focus on Clients Goals
Partnership Maximization
High Performance Assurance
Shared Vision
Open Communications
Customer Visits
CLIENTS GOALS
Clear Expectations
Quality Audits
Process Maximization
Performance Maximization
Collaborative Solutions
Continuous Improvement
Quality Plan
33
A FULL SERVICE CONTRACTOR CAN SUPPORT GROWTH
THROUGH THE PRODUCT LIFE CYCLE WITH TECHNOLOGY,
CAPACITY, OR FULL SERVICE PROVIDER EXPERTISE
Conclusions
LICENSE PRODUCT TECHNOLOGY AND PROVIDE SERVICE TO
MARKET
LICENSE PRODUCT TECHNOLOGY AND/OR CAPACITY SUPPORT
TECHNOLOGY AND CAPACITY TO SUPPORT GROWTH

TECHNOLOGY SUPPORT DURING PROCESS AND PRODUCT
DEVELOPMENT
TIME
34
Conclusions
SUMMARY - I
THERE ARE MANY REASONS TO OUTSOURCE PRODUCTION OR
SERVICES, BUT THE MOST IMPORTANT IS TO ENABLE
INTERNAL RESOURCES TO FOCUS ON CORE FUNCTIONS AND
INNOVATION
35
A FULL SERVICE CONTRACTOR CAN PROVIDE NOT ONLY
SUPPLY CHAIN SUPPORT, BUT ALSO PROCESS TECHNOLOGY
THAT SUPPORTS THE CLIENTS PRODUCT DEVELOPMENT,
AND SALES/MARKETING SUPPORT OF CLIENTS CUSTOMER
Conclusions
SUMMARY - II
36
THE CLIENT AND CONTRACTOR MUST SHARE COMMON GOALS
AND VISION FOR THE CLIENTS BUSINESS.
Conclusions
SUMMARY III

• BUILD LONG TERM STRATEGIC RELATIONSHIPS.