ABN AMRO NEWS: without open communication, the chain breaks down
16 June 2020
Plastic injection moulding companies form an important link in the international production chain for cars and consumer electronics. However, the coronavirus has had a serious impact on the trust that exists between suppliers and buyers in these sectors. Many companies worry that partners in the chain will go their own way. CEO Patrick Gerard of Rompa Group and ITB Group is therefore open and honest to his relations. His video message has been met with a ton of positive feedback from customers.
The five action points of Patrick Gerard, CEO of Rompa Group and ITB Group
1. a) Cash is King – We strive to achieve maximum liquidity by reducing stock levels, drawing up a tight cash flow planning and utilising credit lines and government support measures in the countries we operate in.
2. b) Costs are Evil – We minimise overtime and the use of agency workers, take a hard and critical look at small expenses such as subscriptions and licences and pay our invoices no earlier than the final payment term.
3. c) Keep Track – We draw up weekly profit and loss accounts and track all operational and financial parameters via a management dashboard.
4. d) Communication is Key – We communicate actively and openly with our suppliers and buyers. We do our best to alleviate any concerns they may have about problems arising in the chain.
5. e) Reinventing the Company – During brainstorming sessions, we think about possible opportunities for our businesses once the current crisis is over. In June, we will translate the best proposals into concrete business plans that will be put into practice in the second half of the year.
How has the coronavirus affected a manufacturer or injection-moulded components?
I will give you three examples. We manufacture a lot of components for automotive suppliers such as Bosch and Siemens. Car manufacturers were forced to suspend all operations for weeks and things are only now slowly returning to normal. However, the demand for cars has collapsed. In many markets, it is only a fraction of what it was before the coronavirus hit. Second example: we produce a lot of components for shavers for such brands as Philips and Braun. We expect consumers’ disposable income to decrease as the unemployment rate goes up and governments start raising taxes to “earn back” the money they spent on their support measures when the crisis was at its worst. The smoke detectors we manufacture for Johnson Controls and Tyco are a third major source of income. For the time being, construction companies are still delivering a lot of new buildings, but what will the situation be like in 2021 or 2022?
What do these economic uncertainties concretely mean for your organisation?
We form a link in a large number of complex industrial chains. What we’re seeing now is that companies are starting to make self-centred decisions. In doing so, they disrupt the supply chain. They present optimistic expectations, but ultimately end up ordering less. Alternatively, they do not purchase the volumes they ordered, so you cannot send your invoices and your warehouses fill up with unmovable inventory. In April and May, there were clear differences between the prognoses and our sales. It’s almost as if the rules of the game don’t apply anymore, given the current circumstances. The trust that exists between chain partners is at risk of breaking down. That is why I recorded a video message. With this video, I want to explain to Rompa Group’s suppliers and buyers how our company is doing and what measures our chain partners can expect from us. Many of our major buyers responded very positively to the video. Around 80% of the purchase directors we do business with have sent me an email about it. Our suppliers generally did not respond quite as enthusiastically.
It is good to set a goal. If you fail to reach that goal, you have to reorganise a second time, which hurts a lot more.
In your video, you say that Rompa expects its revenue to drop by 25% in 2021. Isn’t that a bit harsh?
All our plant managers were asked to make sure their operations remain profitable, even with a twenty-five-percent drop in revenue. It is good to set a goal like that. If things turn out better than expected, that’s great. If we were to expect a ten-percent drop in revenue, we would have to reorganise a second time, which hurts a lot more. As we are now focusing on maximising our cash flow see box, we have the means to downsize if necessary. A factor we are not taking into account just yet, but which might become reality is that some of our competitors might go out of business, which means their customers could bring their business to us. That will probably not happen this year, but it could happen next year.
Is the corona pandemic a precursor of reshoring?
No, I don’t think so. It is good to be a global player who can deliver locally, close to the customer or their buyer. That offers maximum flexibility and the lowest possible transport costs. Our biggest production sites are located in China, the Czech Republic, Mexico and the Netherlands. The differences in labour costs are vast, which means we have to use smart methods here. In the Netherlands, we have put a temporary halt on the use of agency workers. Employees who do not normally work in production have now joined the team on the work floor for four hours a week. That is the best thing that has happened to us these past months. Managers and engineers suddenly find themselves doing the “mindless” work of our production staff, which leads to some very creative suggestions about how to optimise our production processes; e.g. with regard to the packing of our products. That is the silver lining of a crisis. Everyone is focused and open to change.
Do you feel supported by the government and the banks?
The Dutch government has done a great job with its NOW scheme. It helps out a lot and gives you time to do what you need to do to stay in the game. Compared to other countries, that is a fantastic achievement. We maintain close contact with our account manager Lex Teulings of ABN AMRO. For the past seven years, our operations have been consistently profitable. Most of that money was reinvested in our organisation. Before the crisis, our cash position was already pretty good. At the moment, we have more cash than ever before. We have asked our bank to set our current account to maximum, so we are prepared if things should take a turn for the worse. Our request is currently being processed. I expect we have enough unpaid invoices to get it approved. They’ll be there for us when we need them.