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The Power of Two: Partnerships in the Manufacturing Industry

Written by: Sarah Gerdes

Article Overview: In the manufacturing industry, the term partnership used to apply to old-school joint ventures, now it can just as easily be used in the context of modern distribution, licensing or joint development deals. To start a new business in this traditionally cash-strapped, union-laden industry, it’s important to understand the attributes of a partnership in the manufacturing industry, and success stories from the most 4 beneficial types of partnerships for small businesses.

The Power of Two: Partnerships in the Manufacturing Industry

The Real Definition
A lot of entrepreneurs are confused by the word partnership when it comes to the manufacturing industry. And no wonder. Whereas the term used to apply to old-school joint ventures, now it can just as easily be used in the context of modern distribution, licensing or joint development deals. To start a new business in this traditionally cash-strapped, union-laden industry, it’s important to understand the attributes of a partnership in the manufacturing industry, and success stories of the most beneficial types of partnerships for small businesses.

True Partnership Characteristics
A true partnership between companies exists when joint efforts are multi-faceted, in that they are conducted in two or more areas of business. This differentiates a true partnership from a single-facet relationship with a vendor, supplier, or service organization. A wide variety of partnership types are available to companies in the manufacturing arena which increase revenue and margins by:
• Eliminating operational inefficiencies by shutting down an under-producing division and creating a joint development partnership
• Eliminating the need for new equipment and capital by creating a manufacturing partnership
• Eliminating the necessity to have an expensive engineering staff through an engineering partnership
• Eliminating costly overseas offices required to penetrate a new market through a joint sales and distribution partnership

The Power of Two: Joint Development

A true partnership embodies the face-paint wearing shirtless enthusiasm and commitment of a football fan attending a December playoff game. It means both parties have the motivating factors which produce a commitment to succeed. In short, one or both firms must increase, extend, or create an existing business practice to support the specific needs of its new partner. It might also mean changing your own product design and development to better serve the customer base.

Take the recent joint development partnership of Matrix One and Formation. Both firms acknowledged stagnant growth and underwhelming revenues, so a joint development partnership was created to reduce overlapping products and entrench both deeper in the customer base. Marketing jargon aside, this partnership hits the bottom line in the form of cost savings of marketing, sales and engineering personnel. It also prevents customers from choosing one solution over another. In short, the partnership was a good proactive move that is equally defensive against adverse market conditions.

Engineering Partnerships

If the intent is not to create new products but optimize margins, manufacturing partnerships in particular can be used to offload your growing pains, which keeps your part of the business “short and profitable,” according to Sunstream Corporation’s CEO Ken Hey. As a designer of boat lift products, Hey placed the risk of hiring people and equipment, two aspects which are very capital intensive, onto the infrastructure of his partner, Elliott Bay Manufacturing. Because of the engineering and manufacturing partnership Hey created at the earliest stages of his business, he was free from these burdens, as well as the need for outside financing. This allowed Sunstream to reach profitability before accepting outside financing.

Field Sales Partnerships

Sometimes, two firms going to partner to do one thing: increase sales activities. This is the case for Descarte who got industry lion Hong Kong Bank to share its customers. In a single partnership, Descarte created a market aggregator effect; Hong Kong Bank will aid in the marketing and sales efforts of the Descarte solution, and it is only common sense that a percentage of customers will in turn, believe the Descarte solution good enough to deploy to their own customers. This creates a market aggregator effect whereby Descarte could potentially win an entire industry. Forget the fact that this wisely reduces cost on Descartes marketing team and likely cuts the sales cycle, or whether or not Hong Kong Bank gets a cut is irrelevant,. Hong Kong Bank likely opened up the customer Kimono in order to retain customers and increase loyalty in a dynamic and competitive market.

Manufacturing Partnerships

A huge, untapped resource of manufacturing talent exists in nearly every country on earth: the penal system. Elliott Bay Manufacturing was required by its partnership with Sunstream to both engineer and manufacture the boat lifts. In turn, Elliott Bay Manufacturing tapped into the good men over at the Washington State Penitentiary and now employs a portion of the state’s prison work force to create his engineering designs. This single faceted vendor status evolved to become a partnership, since the specialized workforce is trained by Elliott Bay to required quality standards, and provided with detailed materials, drawings and other essential information about the supply chain. While the penal system and the inmates receive compensation, Elliott Bay’s costs are dramatically lower than employing union workers in a more traditional machine shop. , Sunstream products are offered at a lower price to the consumer, and the entire product supply chain from creator, designer, manufacturer and installer to consumer benefit from the smart partnerships created.

Other available partnership options

Land, distribution, facilities, distribution and operation partnerships dramatically improve margins even in the most constrained market. The key is to balance corporate objectives with short and long term tradeoffs. So before discounting the entire business tool of partner development as a waste of time, consider how each facet of business can operate more productively, efficiently and at a higher margin with a partner than going it alone. As you become more familiar with the best partnership to accomplish your objectives, you will be able to pinpoint the type of partnership necessary and the specific attributes for the partnership. In so doing, you will be able to accurately discern partner development reality from misconceptions and results from hype.

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