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DRIVING INNOVATION AND ABILITY TO COMPETE THROUGH OUTSOURCING

bernardo:. bernardo:. DRIVING INNOVATION AND ABILITY TO COMPETE THROUGH OUTSOURCING. Anthony (Tony) C. Bernardo, Alloy Polymers Inc. NPE 2003. TOPICS OF DISCUSSION. INTRODUCTION BENEFITS OF OUTSOURCING WHY OUTSOURCE OUTSOURCING STRATEGIES

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DRIVING INNOVATION AND ABILITY TO COMPETE THROUGH OUTSOURCING

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  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. INTRODUCTION A Contract Manufacturer Plays a Key Role In The Supply Chain Captive Compounder Resin Manufacturer Contract Manufacturer Concentrate Supplier Additive Supplier Custom Compounder Fabricator/ OEM Fabricator Owned Cmpd. All are contractor’s possible clients or customers

  4. INTRODUCTION Contract Manufacturers typically interact with the Resin, Concentrate, or Additive Manufacturer and the Fabricator Resin Manufacturer Contractor Manufacturer Concentrate Supplier Additive Supplier Fabricator

  5. INTRODUCTION THE PLASTICS INDUSTRY– DYNAMIC AND EVER CHANGING • 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. Why Outsource? THERE ARE MANY SITUATIONS WHERE OUTSOURCING TO A CONTRACT MANUFACTURER IS THE SOLUTION • 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 SPECIALEQUIPMENT, 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. Outsourcing Strategy ROLE OF A CONTRACT MANUFACTURER IS TO MEET THE NEEDS OF BOTH THE CLIENT AND THE CLIENT’S CUSTOMERS Client’s Existing Products Client’s New Products Client’s Existing Customer Client’s New Customer

  15. Outsourcing Strategy PRODUCTIVITY INCREASES ARE ACHIEVED BY OUTSOURCING LOW OR DISRUPTIVE VOLUME 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 IT’S 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 CONTRACTOR’S 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 CLIENT’S CUSTOMER WITH SALES AND TECHNICAL SERVICE

  28. Technology support Strict Customer Confidentiality Logistical Capabilities Consistent Quality VALUE On-Time Delivery High Yields Materials Management Production Capacity Ability to Service Client’s Customers Ease of Doing Business CLIENT’S 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 CommitmentsOur 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 Contractor’s model to focus on Client’s 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 CLIENT’S PRODUCT DEVELOPMENT, AND SALES/MARKETING SUPPORT OF CLIENT’S CUSTOMER Conclusions SUMMARY - II

  36. THE CLIENT AND CONTRACTOR MUST SHARE COMMON GOALS AND VISION FOR THE CLIENT’S BUSINESS. Conclusions SUMMARY III • BUILD LONG TERM STRATEGIC RELATIONSHIPS.

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