Morgan Polymer Seals doubles down with safety stock

SAN DIEGO—It's no surprise COVID-19 has created havoc in supply chains throughout the world. But one rubber seal company servicing the automotive industry is taking extra steps to ensure its customers do not have to feel that pain.

Morgan Polymer Seals, which has manufacturing operations in Tijuana, Mexico, as well as logistics and headquarters operations in San Diego, is expanding its supply of so-called safety stock to guard against any potential customer order disruptions.

Safety stock is inventory a manufacturer chooses to keep on hand at its own expense to ensure customer orders are quickly fulfilled.

Family-owned Morgan Polymer Seals historically has kept about two weeks of safety stock on hand but has doubled that amount to about four weeks these days. The company also is being more proactive about ordering rubber raw materials further out to make sure they continue to have enough material on hand.

"We just chose to hold more stock to protect our customers and ensure that our business runs smoothly," Todd Tesky, vice president of sales at Morgan Polymer Seals, said in an interview.

"We've always held a certain amount of safety stock whether we had a contract or not just to ensure the smooth supply of materials to our customers. But when COVID hit, we recognized that supply chains could be strained. So we just made the decision to order more raw materials and continue to run our factory and build additional safety stock so that, when orders came back in, we would be able to not only meet the needs but exceed the needs of our customers," Tesky said.

Some customer contracts call for the inventory of a certain amount of safety stock, but others do not. Morgan Polymer Seals is tying up more capital in having extra finished parts on their shelves, but the company said the investment is worthwhile.

Being a privately held, family-owned company allows the firm to make such a decision with little fanfare.

Sean Morgan is chief revenue officer at the company that is under his family's control and headed by his father CEO Kevin Morgan. He described the firm as not too big and not too small, a position that provides the flexibility to make quick decisions.

And that's not always the case with competitors that have a more complicated management structure, Sean Morgan said.

"They are often very reluctant to put any stock on the shelves. A lot of them run very much 'just-in-time.' They will fulfill that order, ship that order and complete the manufacturing of that order just before they ship," he said in an interview. "They don't want to have money sitting on the shelf."

Morgan Polymer Seals, however, sees a value in investing in that inventory if that means business will run more smoothly and customer orders always will be filled.

"One of the benefits of Morgan Polymer is we're a family-owned company. We have a relatively flat management structure. We can make decisions like this quickly and easily," Sean Morgan said.

"It's OK for us to tie up a little money and put it on the shelf and protect our customers from unforeseen things like this year or even in some cases 'oopsies' that happen from our customers as well," he said.

Part of the management structure includes Materials Manager Sam Gaxiola, who talked about a government-ordered temporary plant closure early in the pandemic.

"By stocking extra product, we guard our customers against potential shortages in raw material while also ensuring our customers don't have to wait for parts during seasons of unforeseen demand. No one could have predicted that the pandemic would force a temporary plant closure, but thanks to our safety stock, our customers received their parts on time," he said in a statement.

Morgan Polymer Seals, aside from being impacted by this widespread closure last year, has remained open. The facility, as of early May, had not reported a positive COVID-19 case among its 400 workers in nearly three months.

Morgan Polymer Seals makes its money by selling into the automotive industry and ships about 100 million parts per year.

A computer chip shortage has famously caused disruptions in the completion of vehicles in recent weeks, but the rubber company said its business has yet to be impacted by the manufacturing slowdown.

Some customers have proactively told Morgan Polymer Seals they could see a disruption in demand in the future if there continues to be a chip problem that slows vehicle assembly.

Morgan Polymer Seals sees success as being taken for granted by its customers, and bulking up inventory helps with that, Sean Morgan said.

"We are able to do things like this and be really good partners to our customers. We want to be really easy guys to work with," he said. "We're happy to just fly under the radar. … If you don't hear about us, that's a good thing."

Increasing inventory might not seem like a big deal under normal conditions, Sean Morgan said.

"When everything is running smoothly, safety stock seemingly might not be such a great capability. But, as we've seen, when they need it and you got it, it really does make a big difference for customers," Morgan said.

Morgan Polymer Seals makes gaskets and seals for vehicle applications, including fuel, transmission, engine and electrical systems. The company uses a range of materials, including fluorocarbon, ethylene acrylic, polyacrylate, nitrile, hydrogenated nitrile, ethylene propylene, silicone, fluorosilicone and liquid silicone rubber.