Harmonica maker Hohner fine tunes its international supply chain.
By Chris Dupin
Hohner, the world-famous manufacturer of harmonicas and other musical instruments, still makes many of its mouth harps at its factory in Trossingen, Germany “the old world way,” in which products are hand-tuned and assembled, said Scott Emmerman, director of marketing and sales at Hohner Inc., the company’s U.S. subsidiary.
But like many manufacturers, Hohner now sources product from around the world. It has a part interest in a harmonica factory in Shanghai, for example, and sources products from many locations in both Asia and Europe.
The reduced labor costs in China allow Hohner to make “a series of products that I would say are more economically priced,” Emmerman said.
“The quality that comes out of there is exceptional,” he said, but are generally aimed at amateur and hobbyist players. You’ll even find a Chinese-made Hohner Bluesband harmonica for sale in the store at Cracker Barrel restaurants for less than $7, compared to the $35 that you might pay for a Marine Band harmonica. At the other end of the spectrum, you can buy a custom harmonica signed by Bob Dylan for the company for $5,000.
The company produces over a million harmonicas annually and Emmerman estimates Hohner has a 75 percent market share globally. But it also sells a wide variety of other musical instruments, including accordions; fretted instruments such as ukuleles, mandolins, banjos, and acoustic guitars; drums (sold under the Sonor name); recorders; and melodicas.
These instruments are also made worldwide. For example, ukuleles, which Hohner sells under the Lanikai and Kohala brand, are made in South Korea and Indonesia. Some Sonor drums and Hohner guitars and accordions are made in China, while some accordions are manufactured in Italy and some musical toys come from Israel.
Founded in 1857, the company is publicly listed in Germany and has annual revenues of about 65.2 million euros ($85.5 million), of which about $34 million comes from the United States. Globally, it has about 340 employees.
Hohner’s U.S. operations are headquartered in Glen Allen, Va., near Richmond, where it employs about 54 people and has its primary warehouse. It also has contract warehouses in Portland, Ore., and in Hawaii—the latter largely because of the ukulele business.
While ukuleles have been popular in Hawaii with both residents and tourists, Emmerman said in recent years they have “come back and become a mainstream instrument” as rock musicians such as Paul McCartney, Robert Plant, Eddie Vedder and Jason Mraz have featured them in their acts. Sales have doubled in each of the past three years to the point where the company sold about 300,000 in the United States last year. He figures the company has about a 40 percent market share in ukuleles.
Barbara Koch, logistics manager for Hohner, has ukuleles destined for Honolulu shipped directly from the Far East using NYK Lines because they go direct to Hawaii from the Far East. She said that cuts about three weeks off the transit time, when compared to shipping through California.
She said the company brings in about 30 to 35 containers of musical instruments into the United States monthly, with about 20 to 30 coming to Norfolk, Va., near its main warehouse, and the others being shipped into Portland or Hawaii.
Hohner recently announced that it had selected Dallas-based Transplace as its primary third-party logistics services provider for shipments moving from China through Norfolk to its Glen Allen facility. The company uses different freight forwarders on other routes.
The company ships most of its product in full containerloads, though Koch said Hohner’s products from several factories in China may be consolidated to create a full load. She said there are some instances when cargo has to be shipped by air transport.
Koch said Transplace uses multiple carriers, “so we haven’t had any issues with getting space.”
“Hohner has really embraced our technology,” said Sheila Hewitt, vice president international at Transplace, who noted the two companies have worked together since October 2011. “In doing so we have given them that visibility and control that I don’t believe they had prior to us and they also have completely automated their documentation process.”
She said when dealing with international shipments, there are three levels of transactions, including the actual cargo movement, data processing throughout that transaction and ultimately the documentation. “If documentation is not in sync with the other two, then the process really does sort of fall apart,” Hewitt said. “Also the documentation is very important from a compliance standpoint to ensure that Hohner satisfies all the ISF (importer security filing) requirement.
“Hohner has done a marvelous job of incorporating that electronic documentation into this international transaction so I think that is one of the biggest advantages that we’ve been able to facilitate for Hohner,” she added.
Hohner uses different forwarders on other trade lanes, including Direct Sea and Air, Expeditors and Livingston Hipage.
Koch said Hipage has had a relationship with Hohner that goes back about 75 years —“they know our products as well as we do,” she said. The company also occasionally consolidates cargo from Trossingen with products produced elsewhere in Germany, such as Bad Berleburg Aue. The company’s German products are shipped abroad through Bremerhaven.
The company decided to ship through Portland because “the rates were very reasonable for us and we were looking for West Coast shipping and that seemed to work real well for us at the time,” Koch said.
She said careful and tight packing of musical instruments results in minimal cargo damage. The only drawback is weight, she said — an individual harmonica may weigh only a few ounces, but when a hundred are packed together in a carton, the shipment may end up weighing over 300 pounds. “Our poor warehouse — they groan every time,” she said.
Once instruments arrive in Glen Allen, they are checked by technicians and prepped so they are playable when they arrive in stores.
Hohner gets its products to consumers through several different channels.
“Our business has changed pretty radically over the last four or five years,” Emmerman said. “We used to be what I would call a distributor model where not only did we sell our own branded products, but also we sold other peoples’ products and we distributed them to the 8,000 music stores across America. So we did a little bit of both—we were both a distributor, and we were a manufacturer.
“Over the last five years we really moved away from being a distributor and the only products we deal with are our own branded products. It simplified our business model and focused us a lot more,” he said. “So I think that we always had a lot of different kinds of products going out of here and shipping in different ways — truck freight, UPS, FedEx — but the mix has changed a little.”
The harmonicas are sold primarily through 10 national distributors, and leave Glenn Allen in large shipments by truck.
“We send out unconsolidated shipments once or twice a month to our large distributors and they then take orders from music stores across America,” he said.
The company also sells some products — primarily fretted instruments, drums, and accordions — directly with its own sales force, though Emmerman says there are some distributors who also handle ukuleles.
“Since we’ve done so much more ukulele business than we ever did before, we’re doing a lot more smaller shipments,” he said.
But shipments other than harmonicas range vastly in size. While the company ships to distribution centers operated by some giant retail chains — Costco, Guitar Center with 242 stores and Sam Ash with 40 stores, it also ships to many smaller mom-and-pop music stores.
“We used to have a 40-foot container sit here at our facility and we would load that full every day. Now we are consolidating with big box stores, distributorships and a lot of our customers have their own routing guides on how they want their merchandise moved,” Koch said. “We’re seeing the UPS and FedEx side — the small package side — diminish somewhat, and LTL (less-than-truckload) carriers pick up a lot of our shipments now. That’s really been the major difference in the last four or five years that we notice here.”
Hohner does sell products to schools, including recorders and a Sonor line of mallet and percussion instruments. (These include instruments developed for a curriculum designed by the German composer Carl Orff.)
While getting funding for music education is a challenge during tough economic times, sales have held up fairly well for the company, Emmerman said.
“I think the key to our success is we have been well balanced. We have not been too dependent on any one category,” he said.
Where a decade ago, he explained many instrument manufacturers thought the key to success was seeing how quickly they could move production to China and sell perhaps 20 to 30 percent below the market rate. But with the market now flooded with products coming out of China, he said the challenge now is “to make ourselves unique in some way, to have a compelling product feature, or something about our brand that’s compelling so that we stand out.”
Emmerman said during the Great Depression there were only two categories of instruments that showed increases in sales — harmonicas and ukuleles.
“We found that to be very true over this last recession,” he said. “We’ve had sales increases of 40 percent on the top line over 20 percent on the bottom line for the last three years in a row when many of our competitors and other people in the music industry have seen consolidation and some very lean years. I think it’s because we have products that are fairly inexpensive, fairly easy to play by almost anybody, and easy to learn. I think they appeal in these tough economic times.”