Build, Buy, or Partner

Share This Post
The allure of vertical integration may seem a bridge too far for many manufacturers but there are many excellent reasons to pursue such a strategy. PHOTO courtesy Staubli.

Your best customer just emailed you an RFQ for a big job that requires wire EDM. The problem is your shop is limited to CNC turning and milling work. The plater just called to tell you his new guy left your parts in the passivating tank too long and you’ll have to remake them. Sorry about that. The owner of the centreless grinding house you’ve been working with for years is closing his doors and wants to know if you can buy him out.

Manufacturers have many excellent reasons to pursue a vertical integration strategy. Greater control over part price and quality. Increased flexibility. Shorter lead-times and the ability to pursue work that would otherwise remain out of reach. So why not buy that wire EDM machine you’ve been looking at, or invest in the passivating line you’ll need to tell your current supplier to get lost? And buying out an established business that will not only fill an important need but give you access to that company’s client list? Heck, yeah!

All it takes is time, money, and in many cases, technical expertise that you don’t currently possess. Now what?

Consistency in CNC machine tool purchasing is one piece of the success puzzle at Protolabs.

Follow the leader(s)
It’s a question that many Canadian companies have grappled with at one point or another. A recent article in The Financial Post notes that powersports manufacturer Taiga Motors and zero-emission automaker Lion Electric have taken the lessons learned during COVID-induced supply chain breakdowns and now aim to bring more of their work in-house. 

Similarly, the Canadian Mining Journal reports that Quebec’s Nouveau Monde is pushing hard into the electric vehicle (EV) market by “developing a fully integrated source of carbon-neutral battery anode material in Quebec for the growing lithium-ion and fuel cell markets.” And the U.K.’s photovoltaic news source PVTech states in a 2022 news piece that Canadian Solar of Guelph, Ont. has revealed its intention to “develop tens of gigawatts of solar ingot, wafer and cell capacity in the second half of this year at a total capex cost of around US$850 million.”

It’s clear that some notable EV, solar, and lithium-ion battery manufacturers have begun shifting in favor of shortened, more easily controlled supply chains over the past few years, but what does that mean for Canada’s machine shops, sheet metal fabricators, mouldmakers, and countless other small to medium-sized businesses (SMBs) who don’t have the financial wherewithal to vertically integrate?

Minnesota-based Protolabs has fifteen locations throughout Europe and the United States. The image shown here is its headquarters in Maple Plain, Minnesota. Images: Protolabs

Minnesota nice
Though not Canadian, Protolabs founder Larry Lukis faced this same dilemma more than two decades ago. Tired of waiting months for subcontractors to deliver injection-molded parts, he developed his own software to automate the mouldmaking process. He then began using the then-novel Internet to quote jobs and take customer orders. 

Today, the Minnesota-based Protolabs is a publicly traded international manufacturer with fifteen locations throughout Europe and the United States, more than 2500 employees, and annual revenues of nearly $500M. They’re also a well-known provider of machining, 3D printing, plastic injection molding, and sheet metal fabrication services to OEMs and SMBs around the world, Canada included.  

Protolabs developed many of its current capabilities in-house, but a fair amount of its vertical integration has been achieved through acquisition, an act that Protolabs’ vice-president of integration Dan Barsness knows all about. It’s his job to bring acquired companies (as in the grinding house example cited earlier) “into the fold,” so to speak, and Barsness has some advice for companies that might be tempted to take the same path.   

“More and more customers in the manufacturing sector are asking their suppliers to offer a wide-ranging spectrum of services,” he says. “We concluded some time ago that it was becoming more challenging to offer all these services within our own factories, which is why we acquired 3D Hubs in 2021. Doing so was largely driven by our goal to provide a more comprehensive service for customers through a global network of manufacturing partners.”

A shared vision
The primary reason for this integration is to serve our customers, increase their loyalty to our services, and optimize our profits, he adds. Along the way, he received valuable insight from the owner of 3D Hubs in Amsterdam. “Our progress together will be determined by our ability to establish and maintain alignment between the two companies,” Barsness explains. “This means focusing on our top priorities as we work to integrate the commercial capabilities of both entities.”

Mutual alignment and a shared vision are crucial, but this requires teamwork, an asset that can be hard to achieve when merging two businesses of different size, structure, and corporate goals. Here’s where leadership comes into play, says Barsness. “Our CEO is diligent in ensuring that senior leadership performs optimally as a unit, and so on down the line to the production floor. As a result, we as a company have developed into a high-performing team.”

Acquisition is one route towards vertical integration. So are partnerships. Barsness and his colleagues at Protolabs will tell you they are ready and willing to serve not as a subcontractor, but as a business partner able to supply a variety of manufacturing solutions to its customers, and to its suppliers, the jobs and purchase orders needed to be successful. 

A two-way street
So will Xometry Inc. chief executive officer Randy Altschuler, who describes the company as a digital marketplace that “levels the playing field” for anyone in search of manufactured components. 

“North America hosts hundreds of thousands of manufacturers, each with unique capabilities,” he says. “The challenge they and their customers face is visibility—oftentimes, the relationship is local, especially with smaller businesses that tend to work only with who they know. This lack of visibility restricts their ability to diversify their customer base, potentially creating a risky dependence on a single geographic area or industry. An aerospace company in Ontario might be unaware of an excellent machine shop in Montreal, for example. Our goal is to raise that awareness and bring the two together.”

Like Protolabs, Xometry supplies parts that are machined, formed, printed, molded, and more. What’s different is that Xometry doesn’t make the parts, but rather acts as a broker. To those engaged in the marketplace, the benefits run both ways—the machine shop just mentioned gains access to a customer they might never have met, and the aerospace firm can choose from thousands of pre-qualified suppliers. 

Many of these suppliers are vertically integrated, says Altschuler, or have plans to become so. “When we first started, we had our own manufacturing capabilities but divested ourselves of that upon discovering we can better serve the industry this way. As a result, we’re always trying to find great partners and deliver the right solutions for our customers, vertically integrated or otherwise. We’re agnostic and want to help everyone we can. That’s our goal.” SMT

Share This Post

Recent Articles

Wordpress Social Share Plugin powered by Ultimatelysocial

Enjoy this post? Share with your network