A major milestone for any automotive supplier is the award and launch of a new program, particularly when supplying components to a new OEM platform. It is vital that such launches go smoothly, and when launching during an M&A transaction, success is even more critical. Actual performance vs. financial projections during a program launch will drive buyer confidence in the projections and have a significant influence on valuation.
Having advised many clients through an M&A transaction while launching new programs, we have seen a number of strategies and approaches common in planning and executing successful new program launches. First, obstacles are inevitable – expect challenges along the way. Building cushion for unexpected changes in your financial projections will help minimize the impact on the value of the business when challenges like equipment delays, throughput inefficiencies and changes in customer demand occur. Second, the realities of a tight labor market need to be effectively addressed. A solid plan to attract, train and retain skilled labor is critical to maintaining efficient, on-schedule production and delivery. Likewise, integrating automation into new manufacturing cells will help reduce direct labor costs as well as reduce and improve the consistency of cycle times, assisting in fine-tuning the accuracy of production volume forecasting.
Finally, the credibility and visibility of production volumes are critical, particularly when it comes to due diligence. Tying projection volumes to third-party industry data sources, where possible, is strongly recommended. Tier II suppliers may find this difficult, but specific inquiries with customers and focused data mining through industry resources has proven very helpful.
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