As published in Toledo Business Journal - January 1, 2010
Sauder Woodworking Co. headquarters in Archbold, Ohio
Sauder “insourcing” parts…and jobs
Search continues for domestic
For the past several decades, northwest Ohio and southeast Michigan have experienced a steady flow of manufactured parts and components “outsourced” to companies in China, Mexico, southeast Asia, and other foreign countries. As a significant amount of production has moved offshore, the region has experienced a steady decline in jobs in the manufacturing sector.
However, important changes in the market and issues with foreign suppliers are taking place. As a result, some area manufacturers are reexamining their supply chain strategies. Costly problems with product quality from foreign suppliers, the low value of the US dollar versus other currencies, long shipping delays, increasing logistics costs, inventory carrying costs, and the difficulty of working with foreign suppliers are combining to cause some manufacturers to move parts and components sourcing back to northwest Ohio and southeast Michigan.
In the October 1, 2009 issue of Toledo Business Journal (TBJ), an article on the Supplier Recruitment Program (SRP) in Sandusky County provided information on Crown Battery. In 2007, the company purchased a battery manufacturer in Reynosa, Mexico. The Mexican operations were experiencing high levels of quality issues and product returns due, in part, to high employee turnover.
Crown Battery made the decision to close the Reynosa plant and move its production to Fremont, Ohio. “We found that our people in Fremont [could] actually produce a better battery than employees in Mexico that make $1.81 an hour,” stated Hal Hawk, the company’s president.
The move to “insourcing” parts and components and product production brings an opportunity for new investment and new jobs to the region.
For the past year, a small team of professionals at Sauder Woodworking Co. in Archbold, Ohio has been working to reassess the company’s supply chain strategy for plastic injection molded and metal stamped parts. These are parts used in the company’s ready to assemble (RTA) line of furniture.
TBJ met with the Sauder team working on this project. Kevin Sauder, president / CEO, and Norm Hoeppner, vice president of procurement, set up an interview of the team members with TBJ. In addition to Hoeppner, Sauder team members who participated in the interview included Ron Roth, technical buyer new production; Sue Rakes, supplier development manager; Brian Fritch, concept engineer; and Denise Austermiller, buyer maintenance supplies.
In mid-2007, Sauder promoted Hoeppner to the position of vice president of procurement. “In the past, we purchased these parts based solely on price. However, it is important to look at the bottom line cost to the business and not just purchase price,” stated Hoeppner.
Late in 2008, Hoeppner assembled a team of supply chain professionals to reassess the purchase of plastic and metal parts for Sauder’s RTA furniture manufacturing business. Ron Roth, technical buyer new production, was asked to lead two teams of employees. One team assessed the supply of plastic injection molded parts and the other examined metal stamped parts.
Changes in the market
Historically, Sauder manufactured many of its furniture products for years with little or no changes. However, Sauder’s customer base of large national retailers has placed increasing demands on the company concerning its line of RTA furniture products. These customers are making regular requests for changes to the furniture line. This has significantly reduced the life cycle of many products and also increased the introduction of new products.
At the same time, large retail customers have placed increasing demands on Sauder for shorter delivery cycles. These national retailers have moved to reduce their inventory levels and have turned to suppliers like Sauder to provide faster turnaround of orders.
Major customers include Walmart, Target, Office Depot, Lowe’s, Meijer, OfficeMax, and other large retail chains.
The structure of the industry has also changed. While domestic competition has significantly declined, Sauder faces stiff competition from companies in China and Taiwan.
A competitive advantage
Companies in the Far East have put pressure on pricing in the market. However, the need by large retailers for shorter delivery cycles and lower inventory levels has placed Sauder at an advantage over its Asian competitors. Sauder has positioned itself to provide service on orders in four days. It has also positioned itself to provide timely response to requests by its large retail customers for changes to existing items in its furniture line and for new products.
The demands of its customers for shorter delivery cycles and Sauder’s strategy to continue to advance its service capabilities was the driving motivation behind the company’s efforts to reassess its supply chain. “One of our biggest strengths is our flexibility and speed of service to our large retail customers,” stated Hoeppner. “We can’t meet this service when it takes three months to obtain parts from offshore.”
In an effort to find ways to increase the company’s speed and flexibility to deliver its products to customers, the supply chain project team began an assessment of an “insourcing” strategy. Could suppliers be found in close proximity to manufacturing operations in Archbold that would improve delivery capability and be financially viable?
The project team selected a group of parts to begin its examination. They focused on both plastic injection molded and stamped metal brackets, feet, shelf holders, and other parts that are included with their RTA furniture products. The list of parts selected represents approximately $4 million of purchased items for the company. While 50% of these parts are currently being sourced from China and Taiwan, the remaining 50% are being shipped into Archbold from other parts of the country.
Sauder is examining options for moving the sourcing of parts closer to Archbold. This includes parts coming from both the Far East and parts coming from other parts of the United States.
“The parts selected are not a huge dollar value. This is a learning process,” added Hoeppner. The team explained that its work on the plastic and metal parts has enabled it to develop an approach for assessing new suppliers located closer to Archbold. It will use this approach to examine other parts and materials purchased by the company for its production process.
New supplier selection
The project team set a supplier distance of 250 miles from Archbold for its “insourcing” initiative. However, most of the suppliers that it examined for this phase involving the molded plastic and stamped metal parts are within 150 miles of its manufacturing operations.
“We examined 19 plastic and 29 metal suppliers. We narrowed this group to seven and we went to visit each of these companies. We then narrowed the list to three,” stated Roth.
In early December 2009, the project team placed its first order to an area supplier as a result of this effort. The team selected Edon, Ohio-based Plas-Tec Corp. to manufacture some of its plastic injection molded parts. In mid-December 2009, the project team placed its second order resulting from this work. The team selected Montpelier, Ohio-based Dyco Manufacturing, Inc to manufacture some of its stamped metal parts. A third manufacturer – New Bremen Machine & Tool Co., Inc. located in New Bremen, Ohio – is currently being considered for order placement.
The team shared a number of major factors in their selection process. They examined issues involving the suppliers’ operations and their ability to deliver quality products. They wanted suppliers with diversification of products and markets and they did not want Sauder’s business to represent more than 25% of the supplier’s sales.
Financial stability was also an important factor and companies with lean operations were preferred. The team also wanted to find area suppliers who could help them understand product costs and who were able to identify new alternatives for improving performance and reducing costs.
Finding suppliers that would be able to work with Sauder on new product development was a priority. Brian Fritch, an engineer on the team, advised that Sauder spends a significant amount of time developing new products. He explained that there are important benefits to the new product development process of having suppliers located closer to the Archbold operations.
Tooling suppliers a hurdle
“A hurdle that we ran into on this project was tooling,” stated Hoeppner. Sauder was able to find area manufacturers that were competitive on production costs. However, according to the Sauder team, none of the domestic suppliers of plastic injection molded parts were competitive on the tooling for molds.
The cost of tooling from offshore suppliers tended to be in a range of $4,000 to $10,000. Comparable costs from domestic tooling suppliers were in a $20,000 to $40,000 range.
“Sauder put a lot of time into understanding the cost of tooling. We contacted tooling companies to try to find a domestic supplier. We used the same specifications for metal materials from both offshore and domestic companies. The Chinese suppliers were a third of the cost of the US companies,” explained Ken Sharlow, general manager, Plas-Tec Corp. However, delivery costs were higher from the offshore suppliers.
In addition to the higher tooling costs from domestic companies, lead times were longer, according to Plas-Tec management. Foreign suppliers are able to provide eight-week delivery cycles using airfreight delivery. Domestic firms are only able to deliver the same tooling in 10 to 18-week delivery cycles.
While Sauder is moving to “insource” these plastic parts, the tooling will still be manufactured offshore. The project team is still looking for domestic tooling suppliers for plastic injection molded parts that can be competitive on price and delivery time with industrial companies in the Far East.
Additional “insourcing” opportunities
The Sauder team discussed its supply chain plans during the interview with TBJ. A range of the company’s product and material purchasing was examined. The team is working on “insourcing” opportunities in a number of other areas.
The company manufactures many products that use slides for drawers and hinges for doors. The team will begin an examination of area suppliers for these parts. Performance for drawer slides parts is more demanding than the injection molded plastic and stamped metal parts. In addition, Sauder has offshore suppliers of drawer slides parts that the team described as highly capable and competitive.
The furniture products manufactured by the company include a significant amount of fasteners. The project team believes there may be “insourcing” opportunities for these fastener products.
While the team is examining supplier alternatives for moving purchases back from the Far East, they are also examining domestic suppliers located in other parts of the country. They are assessing the feasibility of moving this part of the supply chain to manufacturers in close proximity to Archbold.
The issue of speed and flexibility of delivery to customers is driving the changes the company is currently making in its supply chain.
However, Hoeppner explained, “We are not saying that we would never outsource. We will continue to examine each situation and find the best total cost position for the business.”
New jobs in Williams County
Ken Sharlow, Plas-Tec general manager, stated, “The new business from Sauder is just beginning. When more orders are entered we expect to call some of our employees back to work.”
Sharlow explained that the tough economy has forced the company to cut back its operations. He estimates that approximately six jobs will result in the near term from the Sauder work that will allow the company to recall these employees to work.
Wes Dye, Dyco plant manager, added, “The new business from Sauder is a good opportunity for our company. We will be adding two or three new jobs in the short term. As additional orders from Sauder are phased over time, we expect to continue to add employees.”
Dye also explained that Dyco uses outside suppliers for powder coating the Sauder parts and also to produce the tooling for their presses. These suppliers are located in proximity to Montpelier. Dye explained that these outside suppliers would also be adding new employees to support the production of these metal stamped parts for Sauder.
“The move to insourcing parts from domestic suppliers is one of the solutions to our national economy,” concluded Dye.