Could global expansion be key to supporting your largest customer?

When the success of a manufacturing business relies on one key Customer, you must partner with them when they expand to other parts of the world, even when you have no local presence or experience. Failure to follow them and fully meet their expectations opens the door to your competitor and could thereby devastate your business.

How do you evaluate and prepare for such opportunities? How do you meet the challenge of manufacturing your product on the other side of the world? What are the requirements for success?

Please consider this following case:

Company Characteristics:

After a major acquisition in the mid 1990’s a large industrial coatings manufacturer had consolidated production from three different facilities into one in North Carolina. The facility in North Carolina went from producing 10 to 20 tank wagons of liquid coating per year to over 500 tank wagons per year by 1995. One key customer constituted 20% or more of all Sales volume. In the same year (1995) this key customer communicated that they were building a new state of the art manufacturing location in rural Ireland that would satisfy ALL existing Customers in Europe and the surrounding regions. The desire expressed from the key customer was to have local supply in Ireland of the liquid coatings to avoid potential duties and avoid extended supply chain complication.

Project Characteristics: 

A supply agreement was negotiated and completed between the coatings manufacturer and their key customer by late 1995 to supply coatings. The commitment was made to build/operate a facility in rural Ireland to ensure continuity of the business relationship. The coatings manufacturer had only one other European facility in Germany at the time and that facility was not capable of supplying the product needed in Ireland. Until the new facility was operational, coatings would be supplied from North Carolina as needed.

Challenges (Risks):

•The coating formulations needed for the Customer were not finalized and required further testing at the time of the supply agreement approval.

•A suitable property/location in rural Ireland that was close enough to the customer had to be found.

•Conceptual Design required for the new facility could not be done without knowing the layout (size) of the new facility.

•Supply chain requirements for raw materials had to be determined (what could be sourced in Europe and what could not).

•Engineering resources in Ireland to support the project had to be found and vetted.

•Legal Representation and Banking resources had to be determined in Ireland.

•Environmental Analysis questions and the ability to meet Irish/European Standards were unknown.

•Local Acceptance in the community for a coatings manufacturing dealing with many chemical materials had to be taken into consideration, with a plan to address the requirement.

•Understanding the Permitting Process to know how long the project should take before becoming operational had to be determined.

•Qualified Local Staff for finance, administration, technical service, quality control and manufacturing had to be found.

•A remote site in Ireland would be over 3,000 miles away from headquarters in North Carolina, so it had to be self reliant in all aspects of its operations.

•Any investment made was to be considered “sustainable” or to made for the long term, therefore a balance had to be reached on Capital Costs relevant to the immediate needs of a key Customer.

By late 1995 the key customers project had been delayed due to negotiations on environmental permissions with the Irish Government. It was anticipated this delay would be a year. This allowed time for the top four challenges to be completely addressed. There was also a wave of optimism about investment in the Republic of Ireland, which sustained interest in this project, no matter what the challenge might be.

1. Repeated large scale line trials/simulations at USA based customer sites (mills) were conducted and led to the fine tuning and finalization of the coatings formulation that was to be manufactured for the customer in Ireland.

2. Finalizing an ideal location/site in rural Ireland, along with alternative locations was completed, through the help of the (IDA) Irish Development Authority which facilitates companies seeking to make investment in the Republic of Ireland.

3. The site location would need to be far enough away to operate independently from the key Customer to allow for confidential expansion of the overall business in time, but close enough for rapid service to the key customer as needed.

4. Completion of the conceptual design of the new facility based on the ideal site and all the alternatives was now completed, allowing preliminary engineering layouts to be reviewed and refined/optimized for each alternative.

Due Diligence was also initiated for the following in 1996: 

•Financial – Capital budget analysis was conducted along with balance sheet projections and goals.

•Securing Legal counsel to fully understand aspects of leasing Irish Property was completed.

•Securing local Engineering support to help prepare the project for submittal was obtained.

•Architectural analysis and Layout (Mechanical, Electrical, Plumbing, Pneumatic) was conducted and prepared.

•Key new equipment was reviewed and decisions made on procurement, along with the timing needed to have everything available for the project in 1997.

•Quality Control Procedures were finalized, including processes for raw materials sourced in Ireland or Europe.

•IT options – MRP (Material Resources Planning) software was determined for the business and operation.

•Detailed Project Plans – Gantt Charts were prepared and reviewed for the project.

•Environmental Due Diligence – Air Emission Due Diligence requirements for the Irish EPA were reviewed and finalized.

•Personnel and Human Resources Reviews where conducted for the personnel needs at the new site.

•Technical and Sales support requirements were determined to support the business and customer.

•Supply Chain – Raw material evaluation/synergies – Discussions with suppliers on business needs and volumes were conducted.

•Consultation on importation requirements and duty free options through the EU were conducted.

There was some special attention and actions taken with the Irish Government made through contacts in the Irish Development Authority. The project team met with government representatives of the region in the Irish Parliament to explain the project. In addition the local Irish government entities were consulted and explanations provided for the nature and scope of the project. Key persons in the town/village were met and consulted regarding the nature and scope of the project. Finally, every household on the street where the factory was to located was visited by the project manager to make introductions, explain the nature and scope of the project and answer any concerns or questions. Commitment was made to the village as part of the project planning submittal that financial contributions would be made for sidewalks and lighting for the street.

Subsequent Actions: 

•Finalize Project Plan for submittal to Irish Authorities

•Sign the lease for the property

•Finalize General contractor and sub-contractors

•Place purchase orders for key equipment including process mixers, QC, IT, Tanks/vessels, electrical transformers, air compressors, RO water unit, forklift and truck scale

•Hire Irish Financial Controller

•Finalize plans for next employees

•File for Operating Permit from the Irish EPA

Funds were submitted to the county (Leitrim) authorities ahead of the 30 day waiting period in a show of good faith to the village in March of 1997. There were ZERO objections from the community – not even a comment. A ground breaking ceremony (tree planting) was held in April of 1997 just prior to the commencement of the build out of the facility. Just after successful commissioning of the facility in September 1997 a party was held at the facility, with the invitation to the local community residents, dignitaries, the key customer representatives and all key contractors connected to the project.

The operation was able to obtain duty free status some key raw materials by working with the EU in Brussels, making it a financial success for several years. There were 8 employees at peak employment.

The long due diligence period and long planning timeline was used wisely to allow for improvements in design and processes. This also allowed for a very high quality product, improved and more consistent that what could be provided from North Carolina. This facility has changed hands through corporate acquisition in subsequent years but has sustained support of liquid coatings for its local key customer.

A summary of the key aspects to success when following your Customer around the world and making it a success:

•Verify that you can produce what is required at the new location.

•Verify all aspects of Customer satisfaction can be met or exceeded.

•Cultivate a close partnership with an aim on a long term relationship with the local community at your new location.

•Ensure that the smallest and largest details are evaluated properly before launching your project.

•Understand, Explore and Avail of all governmental assistance provided for your business at your new location.

•Hire great contractors, consultants and employees from the new location or local community.

•Execute plans wisely and ensure that the proper level of corporate support is provided to the new business.