Whether you’re buying from a vendor in the U.S. or offshoring to a low-labor-cost country, there are some simple, but often over-looked, steps you can take to ensure success. Read more in this interview with Jeff Somple, President, Northern Operations.
Do you see common mistakes OEMs make when choosing a contract manufacturing supplier?
Yes, and one of the most widespread is insufficient vetting upfront. Since outsourcing to a contract manufacturer is such a long-term decision, companies sometimes make the mistake of reacting too quickly because they’re under a timeline to get their product into motion. My advice? Once you’ve narrowed your decision down to two or three finalists, take the extra time to really do your homework. Look at their financial condition. Delve into the bandwidth each has to devote to your project. Check out their quality systems; don’t just assume the quality is there. With all the documentation and validation that’s involved today, especially in medical device manufacturing, you want to make sure you’ve picked the right horse at the beginning of the race.
A while back, Mack Molding was a finalist on a project, but, in the end, wasn’t chosen. A couple years later, the OEM returned to us and said, “We think we’ve made a big mistake.” They wanted to transition the product to us when they were halfway down the track. We managed to pull it off, but there was a lot of extra time, money, sweat and high blood pressure on both sides. So take the time upfront to make sure you’re really picking the right partner.
Specifically what do you mean by ‘bandwidth’?
By bandwidth, I mean the people, resources and space your potential supplier has to devote to your project. Find out who your team members are going to be, not just by title, but also by name. Ask to meet them, see their resumes. Are they going to be dedicated to your project or are they spread over several?
Where is your project going to be built? If the supplier’s plant looks pretty full, ask to see the space that will be earmarked for your project.
Most likely, you’ll be asking them to carry a significant amount of component inventory. Ask to see the financials that will indicate their capability to do that.
The bottomline? Make sure the supplier has the structure in terms of people, space, equipment and money to do the work you’re asking them to do.
Should OEMs, especially those in the medical market, look for offshore suppliers?
If you’re talking strictly about the cost of manufacturing, it obviously depends on the product itself. Take a syringe kit, for example. It’s a relatively simple product. Volumes are going to be high. Production will be repeatable and will require a lot of hand packaging, thus labor. In this case, it may be hard for a U.S. manufacturer to compete.
One cautionary note, however. Before being lured by low labor costs alone, pay attention to the burgeoning middle class populations in some of these countries, especially China. As the U.S. and other countries pour wealth into Asia for goods and services, its standard of living improves, which will ultimately result in worker demand for higher wages. The labor dynamic is changing.
Now let’s go to the other extreme. You have a very large medical device with hundreds of unique components that have to be assembled and repeatedly tested. Production volumes are low, but quality and complexity rank extremely high. This would be very difficult to manage offshore.
In reality, most products fall somewhere in between these two extremes, so you have to calculate much more than labor.
When offshoring, what are other factors to consider beyond labor?
Shipping will be one of the biggest costs, which we all know is rising dramatically. Calculate not only cargo container costs, but also duty, port fees, and land transport to and from the offshore port, as well as to customers or distributors within the US.
As mentioned before, time-to-market is key. Generally accepted estimates for land-to-land shipping plus unload, Asia to US, can be four-to-six weeks. And what about the unexpected delays? Dock strikes, Homeland Security issues, the Chinese New Year, the Olympics – any number of circumstances outside your control can crop up. Worse yet, what if you find the product has to be reworked and it’s already on the ocean?
Quality requires constant vigilance. If your product is very complex, requiring hundreds of components and a supply chain of 30 or 40 vendors, and is subject to FDA control and audits — that definitely tilts the scale toward North American manufacturing. If some of the components or materials are not available in overseas markets, or don’t meet your quality requirements, you will be forced to export components made in the US to the offshore supplier, and then turn around and ship the finished product back for US distribution. This results in redundant costs that are often overlooked.
There are many more cost scenarios that obviously must be carefully measured before offshoring. Travel is difficult. Communication is challenging. Because of long shipping times, schedules are rigid and flexibility to changes in market demands is minimized. Just-in-time inventory methods and lean manufacturing opportunities are certainly compromised, if not prevented.
This is a complex topic about which volumes have been written. But based on our experiences, combined with anecdotal evidence from customers and suppliers alike, the China-mania craze is seeking and finding its own level. The work that makes sense to go offshore – high volume, low complexity, with a high cost of labor as a percentage of the product – continues to migrate offshore. But we’ve also seen work coming back to the US or not going offshore in the first place – products that are large, difficult to ship, highly complex, FDA-regulated, with a low cost of labor as a percentage of the product. It’s all beginning to settle out and make sense.
Jeff Somple, president of Mack Molding’s Northern Operatons, also serves on the Mack Group Board of Directors. He has been with the company for 20 years.