Auto Suppliers Reach for the Scalpel

Aug. 31, 2009
Parts manufacturers try hand at medical-device production to revitalize sales

Bill Shepard describes Die-Matic Corp.'s movement into medical-device manufacturing as "slow and difficult." Shepard works as vice president of sales for this metal stamping shop located in the Cleveland suburb of Brooklyn Heights.

The company has traditionally served the auto industry, providing products ranging from suspension to airbag components. But like other auto suppliers, declining OEM sales have impacted Die-Matic's ability to remain competitive, so the company has begun exploring opportunities in the health-care and consumer-products fields.

The company is eyeing the health-care market because it already has many of the quality systems in place required by medical-device manufacturers, and it's a growing industry, Shepard says.

"Our fundamental quality systems are compatible with both groups (health care and consumer products) as long as we stay as a component supplier," Shepard says. "We're not FDA qualified, so we can't get into manufacturing."

If Die-Matic does diversify its product offerings in either the health-care or consumer-products industries, it wouldn't be the first or the only auto supplier looking to branch out. Delphi Corp. has a well-established medical-products subsidiary that makes infusion, respiratory and vital signs monitoring systems.

But it appears that with the economic downturn, more auto suppliers are looking for new growth industries that aren't as cyclical as the automotive market.

The Automotive Industry Action Group (AIAG) has responded to the increasing efforts by auto suppliers to retool their product offerings by introducing a medical-device manufacturing program in early August.

"It entails trying to help sustain a lot of these enterprises and look for growth opportunities that might not be in the automotive vertical," says J. Scot Sharland, executive director for AIAG, a nonprofit organization representing OEMs, suppliers and service providers.

Auto suppliers' focus on quality management systems and their high-tech expertise fit perfectly into the medical-device industry, particularly electronic components manufacturers, Sharland says.

"If you're in the electronics industry, they clearly have state-of-the-art technology," he explains. "The chasm they have to cross isn't as formidable as some people would think when you look at their basic skill sets on paper."

The training programs AIAG is providing to auto suppliers interested in transitioning into the health-care products industry includes sessions on quality standards, error proofing and supply chain regulatory requirements.

Other auto suppliers may look to acquire medical-device manufacturers that already have the expertise in the industry, Sharland says. He refers to Freudenberg-NOK as one supplier that has been active in this area.

The company, which is a joint venture between Germany-based Freudenberg & Co. and Japan-based NOK Corp., is traditionally known for auto components, such as gaskets, sealing products and hose assemblies. But over the years, Freudenberg-NOK has been expanding its health-care offerings.

When the company acquired Anura Plastics Engineering Corp. in early 2008, it formed a health-care products division dedicated specifically to this growing part of its business.

Producing components for an entirely new industry won't be met without challenges, though. Die-Matic has no presence in the market, so right now the company is just looking for a starting point, Shepard says.

The cost for smaller businesses, such as Die-Matic, to make the transition might be greater than any long-term benefit they may realize, Cliff Waldman, an economist with the Manufacturers Alliance/MAPI, told the Wall Street Journal in a June 15 article.

It also takes a focused and sustained commitment, says Sharland. In the past, many automotive companies have entered other markets and then quickly exited when the auto industry picked up.

"It has to be more than that," he says. "It has to be a focused commitment for technology to have sustained power in this space. Those who are up to the challenge will find it pretty rewarding."

About the Author

Jonathan Katz | Former Managing Editor

Former Managing Editor Jon Katz covered leadership and strategy, tackling subjects such as lean manufacturing leadership, strategy development and deployment, corporate culture, corporate social responsibility, and growth strategies. As well, he provided news and analysis of successful companies in the chemical and energy industries, including oil and gas, renewable and alternative.

Jon worked as an intern for IndustryWeek before serving as a reporter for The Morning Journal and then as an associate editor for Penton Media’s Supply Chain Technology News.

Jon received his bachelor’s degree in Journalism from Kent State University and is a die-hard Cleveland sports fan.

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