Are you stressed about distress?
Many types of businesses are facing financial challenges caused by the pandemic and economic downturn. Plastic injection molders are no exception. A small but growing number of them are in financial distress or have declared bankruptcy.
How can you tell if your molder is in trouble? Here are some warning signs to look for and how to assess their health and vitality.
Slow deliveries: As a molder’s financial situation deteriorates, they may have problems buying resin on credit from their suppliers. This usually causes delays in material deliveries to the molder. That, in turn, delays the delivery of finished parts to you.
Price increases: Often, when a business is in trouble, one of the biggest problems is a lack of cash flow. To generate cash, your molder may increase their prices. They may also offer you discounts for early payment or may try to renegotiate the terms of your agreement.
Personnel changes: If your salesperson, customer support representative or key engineers suddenly leave or if you hear about layoffs at the company, these events may be signs of financial trouble. You may also discover that your molder becomes less responsive as their financial challenges increase.
In addition, they may experience a “brain drain” as their most talented people jump to more stable competitors. Also, consider that actual reduction in labor for cost savings can occur as well. That can cause new product launch, production throughput and deliveries to slow down.
How can you mitigate your risk?
If you see any of these symptoms, then it’s time to do your due diligence. Here are some ways to evaluate the health and vitality of your plastic injection molder:
View their financials: Most OEMs audit their suppliers regularly. But often these reviews tend to focus on processes and quality, not the firm’s financial condition. Try to get a sense of their ability to absorb costs and take risks on your behalf.
If you’re able to acquire enough data from your molder, use it to calculate an Altman Z score. It’s based on five financial ratios that you can calculate from data found on a company’s annual 10-K report. It uses profitability, leverage, liquidity, solvency and activity to predict whether a company has a probability of becoming insolvent.
Talk to other customers: Ask your molder for a list of its current customers. What do they say about the molder’s level of responsiveness, part quality and their record of on-time delivery?
Visit their facility: What is the condition of their production facilities? Are they clean and modern? How old is their molding equipment? Does the production floor appear to be well organized and efficient? Is there evidence of re-investment and growth? Ask what’s new and what emerging technologies they are looking to invest in.
Analyze its market mix: What industries does your molder serve and what percentage of their overall business does each one represent? If a molder has a large concentration of customers in a single industry, they could be seriously hurt if that market ever experiences a major downturn.
Use what you learn from this analysis to evaluate the risk versus reward of moving your parts to a new molder. You may be able to ride out the problems until the molder’s financial condition improves or the company gets purchased by another molder. It’s important to keep in mind that even if this happens, the underlying causes may not be addressed.
If the company slides into bankruptcy, it may continue to operate on a limited basis. If the bankruptcy court decides to shut down the business, however, you could lose access to your tooling.
How can New Berlin Plastics help?
For years, we’ve been making investments in people, technology and processes. That makes us a safe option for sourcing your plastic injection molding needs.
- Our 45-year track record of financial stability
- Our diversified customer portfolio
- Our world-class technology and expertise
- Our agile, data-driven processes
- Our streamlined approach to managing tool transfers
- Our 98% on-time project launch track record
