Situation:
A Tier 1, vertically integrated OEM automotive supplier with $65 million in sales needed to reposition itself after failing to land any new OEM business in a decade. The client’s facility was more than 40 years old and had received very little investment in the previous 15 years. Its equipment was dedicated, fully depreciated and outdated. Its high-precision product line, however, is very sophisticated. The company produces machined castings and components in very high volumes.
To support its existing products, the client estimated it would need capitalization of approximately $7 million. It also estimated that it would require capital investment of $1.5 million for every $5 million it received in new business.
Action:
The client concluded that its best strategy was to establish a presence in China. Because of a previously successful working relationship, the company’s management requested our assistance with this large and critical undertaking.
After reviewing all of the relevant considerations, we recommended that, because of the sophistication of its product line and the need for dedicated equipment; the client should develop alliance partners in China instead of owning or joint-venturing facilities. This strategy would enable the company to reap the benefits of dedicate equipment and long-term manufacturing agreements while avoiding extensive capital investment.
We identified and brought alliance partners into relationships whit the client and helped negotiate long-term manufacturing agreements for both sides. Currently, Fortus Technologies, Inc. serves as the US-based representative for the supply partners as well as a trusted representative for the client, which sourced 50 million components from China.
Results:
Implementing our recommended actions enabled the client to reduce its business costs by $13 million. Meanwhile, the company has been awarded in excess of $25 million in new business as a direct result of the repositioning.