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Small U.S. Manufacturers Give Up on 'Made in China'

Employee Peggy Strickler serges the edges of wool blankets at the Faribault Woolen Mill Co. in Faribault, Minnesota, U.S. Photographer: Ariana Lindquist/Bloomberg
Employee Peggy Strickler serges the edges of wool blankets at the Faribault Woolen Mill Co. in Faribault, Minnesota, U.S. Photographer: Ariana Lindquist/Bloomberg
 
Put off by piracy and quality problems, small companies are
returning to U.S. factories

By David Rocks and Nick Leiber
     June 21 (Bloomberg BusinessWeek) -- When Sonja Zozula and
Jerry Anderson founded LightSaver Technologies in 2009, everyone
told them they should make their emergency lights for homeowners
in China. After two years of outsourcing to factories there, last
winter they shifted production to Carlsbad, Calif., about
30 miles from their home in San Clemente. “It’s probably
30 percent cheaper to manufacture in China,” Anderson says. “But
factor in shipping and all the other B.S. that you have to
endure. It’s a question of, ‘How do I value my time at three in
the morning when I have to talk to China?’ ”
     As costs in China rise and owners look closely at the
hassles of using factories 12,000 miles and 12 time zones away,
many small companies have decided manufacturing overseas isn’t
worth the trouble. American production is “increasingly
competitive,” says Harry Moser, founder of the Reshoring
Initiative, a group of companies and trade associations trying to
bring factory jobs back to the U.S. “In the last two years
there’s been a dramatic increase” in the amount of work
returning.
     An April poll of 259 U.S. contract manufacturers—which make
goods for other companies—showed 40 percent of respondents
benefited this year from work previously done abroad. And nearly
80 percent were optimistic about 2012 sales and profits,
according to the survey by MFG.com, a website that helps
companies find manufacturers. “A decade ago you just went to
China. You didn’t even look locally,” says Ted Fogliani, chief
executive officer of Outsource Manufacturing, the San Diego
company working with LightSaver. “Now people are trying to come
back. Everyone knows they’re miserable.”
     For LightSaver, the decision was simple. Neither of the
founders has ever been to China, which made communicating with
manufacturers difficult. Components that were shipped from the
U.S. sometimes got stuck in customs for weeks. And Anderson had
to spend hours on the phone to explain tweaks in the product. “If
we have an issue in manufacturing, in America we can walk down to
the plant floor,” Anderson says. “We can’t do that in China.”
Anderson says manufacturing in the U.S. is probably 2 percent to
5 percent cheaper once he takes into account the time and trouble
of outsourcing production overseas.
     Dana Olson makes a living convincing small manufacturers
that it pays to produce domestically. About 10 percent of the
roughly 60 companies that his Minneapolis firm, Ecodev, has
worked with have moved manufacturing to the U.S. or decided not
to send it overseas, and another half-dozen are considering
similar moves. “There’s a growing sense, with the economy doing
what it’s doing, of U.S. companies wanting to produce in the
United States,” says Olson. “It’s very important to them to have
‘Made in the U.S.A.’ on their label again.”
     Since 2008, Ultra Green Packaging, one of Olson’s clients,
has used manufacturers in China to make compostable plates and
containers from wheat straw and other organic materials. By
yearend, Ultra Green expects to start producing the bulk of its
wares at a plant in North Dakota to cut freight costs and protect
its intellectual property. “They’re infamous over there for
knocking [products] off,” says Phil Levin, chairman of the
10-employee company. “All anybody needs to do is find a different
factory and make a mold.”
     For Unilife, moving production to the U.S. helped it win
regulatory approval for an important product: prefilled syringes
with retractable needles that make it almost impossible for
medical personnel to accidentally stick themselves. Although the
company used Chinese manufacturers for earlier offerings,
syringes preloaded with medications are subject to stringent U.S.
Food and Drug Administration rules. So in March 2011, Unilife
began making its syringes at a $32 million, 165,000-square-foot
plant it built in York, Pa. “The very thing in the U.S.A. that
oftentimes we complain about—the complexity of the rules and the
regulations—works for us,” says CEO Alan Shortall. “FDA
compliance is the main reason we’re here.”
     Even with strong Mandarin skills, Brian Bethke grew
frustrated with manufacturing in China. The co-founder of
Pigtronix, which makes pedals that create electric guitar sound
effects, discovered that he couldn’t adequately monitor quality
at Chinese factories. The original idea for the company was to
develop products in the U.S. and make them in China, where Bethke
was living. But after several years of finding technical glitches
in as many as 30 percent of pedals, the company decided to move
production to Port Jefferson, N.Y. At its small factory in a Long
Island office park, the company can run multiple tests on its
products and even has a guitarist play each of the 500 to 1,000
pedals it sells monthly before they’re packed and shipped.
     Pigtronix’s move back, completed three years ago, has helped
improve cash flow. While manufacturing pedals in the U.S. can
cost anywhere from three to six times as much as it does in
China, Bethke says Pigtronix benefits from not having capital
tied up in products that spend weeks in transit and then pile up
in inventory. “In China, you have high minimum quantities you
have to order, so you’re building a couple thousand of every
guitar pedal,” Bethke says. “Your carrying costs start to get
huge.” Today the company only makes those pedals it’s confident
it can sell quickly.
     While goods for U.S. consumers are less likely to be made in
China these days, overseas production may still make sense for
companies that plan to target foreign markets. “What we’re seeing
is regionalization, buying stuff from manufacturers in the region
where you’re going to sell it,” says Michael Degen, CEO of
Nortech Systems, a contract manufacturer based in Wayzata, Minn.,
that has eight factories in the U.S. and one in Mexico. “It’s
very noticeable. … We’ve seen movement in terms of manufacturing
in country for country.”

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