Manufacturing next door
Monday, May 21, 2012
ZeeVee, Inc., which sells commercial-grade products for processing high-definition video signals, late last year switched from a contract manufacturer in China to one a few miles from its Littleton, Mass., headquarters.
The six-year-old company initially marketed converter boxes for consumers to watch online providers like Netflix or search the Web on their TVs and felt a Chinese partner would be a better fit, according to an account on its Web site. When executives adopted a lower-volume business model aimed at commercial customers like hotels and health clubs they reevaluated their sourcing strategy and found a local electronics-manufacturing provider, Suntron Corp., with comparable capabilities.
The decision to pull out of China was a reaction to the high-volume, batch production schedule necessary to keep unit costs down. The infrequent production forced the company to tie up large amounts of cash on inventory that would not be sold for months and limited flexibility, making it difficult it to implement quality control measures or introduce product variations.
Other issues mentioned by Co-founder and Chief Executive Officer Vic Odryna included customers unhappy with products damaged during ocean transit, and the hassle of dealing with replacement costs and insurance, plus the huge expense of shipping rush orders by air.
Phoenix-based Suntron’s Massachusetts plant specializes in system design, new product integration, direct fulfillment, product life cycle management, supply chain management services and embedded computing for original equipment manufacturers and large end-users. Suntron also has factories in Phoenix; Sugar Land, Texas; and Tijuana, Mexico.
The two companies analyzed the total cost of procurement, including soft costs such as cash cycle times, true shipping costs, insurance, flexibility, turnaround time, fuel surcharges, custom broker fees and travel/support costs.
Suntron offered lower total cost, simplified logistics requirements and faster delivery, as well as improved communication, the ability to quickly collaborate on prototypes and better response-times on production configuration or other manufacturing issues. Chinese manufacturers are less able to customize services and typically offer one-size-fits all approaches that don’t fit with fluctuations outside the norm, ZeeVee said.
Suntron, which had most of the infrastructure in place to make the ZeeVee products, hired 20 workers to fulfill the contract. Its goal is to ship products the same day they are ordered and it also accepts direct orders
ZeeVee says it has significantly reduced its cash cycle because Suntron does not require up-front payments for inventory. Problems are quickly resolved rather than having the factory shut down for an answer because of the 12-hour time difference between the United States and China.
Product development has been greatly simplified because executives no longer have to take a long flight and lose a week of time to discuss new prototypes. ZeeVee can now make a design change, receive detailed feedback early on and make any necessary corrections without slowing time to market.
Suntron plant manager Jon Saunders said the success with ZeeVee proves the company can effectively produce electronic products in the United States, contrary to the opinion of many that it could only fill a niche for low-volume, high-price products.
“For more than a decade the perception has been that if you’re doing any volume business you have to go overseas,” but the reality is that mass production within certain limits is possible in the United States, Kai Rostcheck, ZeeVee’s director of marketing, told American Shipper.
“Suntron is fully capable of helping us scale beyond our present needs. Should we ever expand to consumer production they also have very large facilities in Mexico. So even if we were able to scale back to that level they still have a better solution for us financially and logistically,” he said.
And ZeeVee would still have the advantage of interfacing with its local factory a half-hour away. Trying to make revisions and manage quality control take hours instead of weeks, he added.
Manufacturing in China still makes sense for very high volume items and those that require extensive hand work, he said. Cell phones and disposable electronics are likely to continue being built overseas. But products that require a combination of automated equipment and skilled labor can be manufactured very competitively in the United States because machines have become capable and allow for higher throughput, he added.