Made in USA? Now, Customers Get to
Choose
In
the beginning, there was "Made in the USA." Then came
"Made in China" and "Made in India." Now
comes a different twist: "Made in the USA, China or India.
You choose."
Pacific
Plastics & Engineering, a privately held Soquel, Calif.,
maker of specialized devices for medical companies, lets customers
decide whether to have their product made in California, or
-- for at least 25% less -- at plants in India or Taiwan. "We
give our customers a choice," Chief Executive Officer Stephanie
Harkness says. "We don't ever pull the wool over their
eyes."
Other medical-device makers are offering the same option, the
latest manifestation of a trend that has been unfolding over
the years as more manufacturing moves abroad. United Plastics
Group Inc., Oak Brook, Ill., and the Tech Group division of
West Pharmaceutical Services Inc., Lionville, Pa., also offer
customers a choice between costlier domestic products and less
expensive ones made overseas. "It used to be a rare service
ten years ago," says Tom Podesta, vice president of sales
and marketing for Tech Group.
Mr. Podesta says between 15% and 25% of his customers opt to
have items produced at Tech Group plants in Latin America; the
rest choose from its plants in the U.S. At least four of his
firm's competitors offer their customers a similar choice, he
says. "It's absolutely what customers want," says
Richard Harris, chief executive of United Plastics.
Contract
manufacturers produce goods designed by other companies -- some
that specialize in automotive and electronic parts offer similar
choices to their customers. And, of course, big companies with
global networks of their own routinely move production around.
Companies that buy parts from other companies can compare prices
from domestic and foreign suppliers and pick one over the other.
Most
companies giving customers explicit choices about manufacturing
locations are businesses selling to other businesses, although
at least one consumer company does something similar. Online
lender E-Loan gives consumers the option of having mortgage
applications processed faster if they have it reviewed by workers
in India. The company says roughly 80% to 85% of customers choose
the Indian option, which saves E-Loan money on labor costs.
Some companies that deal directly with consumers quietly outsource
back-office work; E-Loan says offering this choice is part of
its strategy to build trust and loyalty with consumers.
PP&E
quoted Cannuflow Inc. two prices for the mold of the handle
part for the Extravastat EntreVu. (To have it made in California:
$23,500. To have it made in Taiwan: $14,500.) They chose Taiwan,
for savings of $9,000.
Specialty
medical-device makers are hypersensitive to quality, regulatory
and intellectual property concerns, all of which can restrain
the urge to source from overseas. But the lure of low-cost overseas
labor has become irresistible. "The headline is that medical
customers are starting to get into low-cost regions," says
Mr. Harris of United Plastic. "I think it's inevitable."
PP&E, founded in 1989 with exclusively domestic operations,
works closely with clients ranging from start-ups to medical-device
heavyweights like Boston Scientific Corp. to turn new designs
into plastic parts and finished products. (PP&E is not related
to Pacific Plastics, a San Diego-based company). Under pressure
to reduce costs, the company started offering overseas-production
options in 2001.
"Initially,
companies moved forward with a lot of trepidation," says
Tom Star, sales manager for PP&E. It took time for companies
to grow confident that the overseas facilities, which PP&E
contracts with but doesn't own, could meet exacting specifications
for medical products, he says. Now 70% of PP&E customers
opt for production in India or Taiwan. "It's only going
to become a greater percentage of the work we do," Mr.
Star says. PP&E, which has 110 employees in the U.S. and
175 overseas, broaches the manufacturing issue during the ordering
phase, verbally asking a customer if it is interested in "offshore
pricing." If cost is the big issue, a PP&E sales manager
recommends India, where lower costs on resins and labor can
lead to savings of 25% to 40%, even after the cost of shipping.
If a company is more concerned with speedy delivery, PP&E
recommends Taiwan, where a tooling shop operates 24 hours a
day, versus just 12 hours at the company's other locations.
Some
customers are willing to pay more to produce in California so
"they can see their baby being born up close," or
manage unexpected developments, Ms. Harkness says. PP&E
customer Cannuflow Inc., a Silicon Valley start-up specializing
in arthroscopy instruments, opted to have PP&E make a couple
of its products at its plant in Soquel for three years. Recently,
though, Cannuflow opted to save money on a new product by having
PP&E make one of the parts in Taiwan. The device, which
the company is in the process of hurrying to market, is called
the Extravastat EntreVu, a fluid-drainage device that reduces
swelling during shoulder surgeries. The pen-shaped tool has
two main parts, both of which will require PP&E to make
elaborate molds that will shape the liquid plastic into a precise
form.
The
mold for the first part, a complex tube that manages the flow
of fluids, will take between five and six weeks to produce at
a cost of $40,000. Cannuflow opted to have that made at the
PP&E facility in California. The mold for the second part,
a handle used to insert the tube, can be manufactured more quickly.
Cannuflow decided to have it made at the PP&E plant in Taiwan,
for $9,000 less than it would have cost in the U.S., a savings
of roughly 38%. The Taiwan-made mold will then be shipped back
to the U.S., where it will be assembled with the U.S.-made part.
The product will retail for $45.
"The simpler stuff we did offshore; the stuff that needed
more talented tool making, we did locally," says Ted Kucklick,
chief technology officer at Cannuflow. "To have that kind
of flexibility is very important...It gives you the ability
to make the most capital-efficient decision."
Delphon
Industries, a California-based manufacturer of devices used
to transport hearing aids and semiconductors, began buying domestically
produced trays from PP&E several years ago. Rising resin
prices in recent years, however, led the company to opt to shift
some production to the PP&E plant in Bangalore, India. "We
needed something to drive our costs down further," says
Jeanne Beacham, Delphon's chief executive. Ms. Beacham says
savings from overseas production enabled the company to maintain
its profit margins at a time when resin prices were rising.
Cannuflow's
Mr. Kucklick says any stigma associated with overseas production
has taken a back seat to potential savings. "Nobody looks
for a 'Made in the USA' label anymore. With the customers we
have, the sensitivity is to price," he says.
