New model bolsters minority-owned firms – Crain’s Detroit Business

MPS Group Inc. spent 15 years operating as a minority-owned pass-through, winning valuable automotive contracts then subcontracting the work out, often to companies that weren't minority-owned.

MPS chased contracts, expanding from waste management and industrial cleaning to warehouse management and even carpet installation. The result was MPS operated seven divisions, was expert in only a few, and struggled to turn a profit.

But in 2010, it hired a new CEO, cut product lines and reorganized under a new model bringing more work in-house and diversifying its customer base that helped the Farmington Hills-based company triple annual revenue in the past three years to $101 million, with $50 million in contracts waiting to be signed.

MPS represents a shift in how minority-owned companies are doing business a new model supported by local automakers, suppliers and trade groups to build a more sustainable, profitable minority-owned "ecosystem."

"All that time, MPS were leveraging that minority status to its own demise," said Edward Schwartz, president and CEO hired by majority owner Charlie Williams in 2010 from TriMas Corp. "We're proud of the certification, but we didn't want it to be the sole reason a customer chose us. Now we get the business because we're the most competitive bidder, and oh, we happen to be have the bonus of being minority-owned."

Michelle Sourie Robinson, CEO of the Detroit-based Michigan Minority Supplier Development Council, which certifies minority-owned enterprises, said the organization has been working for the past several years to end pass-through organizations and is recently focusing on building larger minority companies in the supply chain.

"Years ago, it was unheard of to see a $1 billion (minority-owned) business and the (automakers) tried a lot of different ways, to their credit, to move the needle for these business owners, but a symptom of slow-growth were these pass-throughs," she said. "We've gone in and audited our members and threatened to take away certification. It's gone away, and we're seeing many of them becoming more sophisticated and create the wealth that it takes to kill many ills in the minority community."

MMSDC launched in 2015 what it calls its Transformation Project to help automakers and large suppliers identify well-positioned minority-owned enterprises capable of sustainable growth in hopes they become major players in the industry.

"Buyers are using fewer suppliers, that's a reality, so we've got to focus on the minority businesses that are scalable," Robinson said. "We're working with the major automakers in the region to identify, grow and groom these companies now to create an ecosystem where MBEs are using other MBEs throughout the supply chain."

Robinson predicts in the next two years a group of up to 15 suppliers will be part of the program, building the minority-supply base below them.

"They will have their own leverage to build this community," she said. "No one will be buying products from them because they are minority status, but because they are a great company that happens to be a minority-owned."

Redford Township-based supplier Piston Group, owned by former Detroit Pistons guard Vinnie Johnson, is a recent example of a minority-owned supplier transitioning from a commodity enterprise into a full-fledged manufacturer.

With the help of Ford Motor Co., Piston closed on a $175 million acquisition of Takata Corp. subsidiary Irvin Automotive Inc. in September 2016. The deal made Piston the largest minority-owned supplier in the region with expectations to reach revenue of $2.8 billion by 2018, nearly five times the size of the business in 2012 at $570 million.

Piston has been growing with contracts from Ford and others in recent years. In 2012, Johnson's other entity, V. Johnson Enterprises LLC, announced the formation of a new joint venture with Valeo SA called Detroit Thermal Systems LLC.

Expansion with Ford is expected to continue this year with the addition of lithium-ion battery pack assembly. Piston will assemble packs from LG Chem and Panasonic for use in Ford's plug-in-electric vehicle lineup before extending to its battery-electric vehicles, Johnson told Crain's.

The supplier also planned to open two new plants in the next 12 months, supporting FCA US LLC and Toyota Motor Corp.

Dave Andrea, executive vice president of research for Ann Arbor-based nonprofit Center for Automotive Research, said more and more minority-owned suppliers are beginning to move toward true manufacturing capabilities, opposed to assembly operations, like Piston once focused on, which are more susceptible to cuts in a car sales downturn.

"For many years, automakers didn't focus on the customer-supplier relationship; the focus was on securing a prescribed number of what the minority spend should be for the purchasing group," Andrea said. "This overwhelmed a lot of minority suppliers and overextended them, dangerously. Now there's less focus on the service side of the minority spend and more concentration on the true value-added manufacturing companies. Any large supplier or automaker will be under pressure to consolidate the supply base with the ups and downs of the cycle. These minority suppliers are now beginning to hold themselves up with core qualities, and that's how you keep yourself in the supply chain with the customers."

Reducing its offerings from seven business lines to only two total waste management and industrial cleaning did just that for MPS Group. It also centralized its purchasing department, saving the company $1.4 million in 18 months.

"Our strategy became protect what we're good at and improve performance," Schwartz said. "Now we're established in automotive and now we can do more to diversify into other industries."

MPS Group is currently bidding on contracts for companies in the pharmaceutical, natural gas and oil refinery industries.

"When we started this process, we walked away from revenue," Schwartz said. "That isn't happening anymore because we're in the right businesses with the right customers."

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New model bolsters minority-owned firms - Crain's Detroit Business