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Crowdsourced in the U.S.A.

Quirky turns inventors' ideas into consumer products. Now it
wants to manufacture them in America

By Karen A. Frenkel
     June 29 (Bloomberg BusinessWeek) -- In February, Jenny
Drinkard, an industrial designer and recent Georgia Institute of
Technology graduate, proposed an idea to a website called to turn modified milk crates into a home storage
system. Then 1,791 Quirky community members around the world
refined the design, suggesting accessories and ranking them in
order of preference on the site. The result: plastic cubes that
can be stacked, connected, and customized with drawers, slide-in
wooden shelves, cork bulletin boards, wooden feet, and
rollers—fit for a college dorm room.
     Quirky needed to ship a million units of the product, called
simply Crates, to such retailers as Target and Staples by July to
capture back-to-school shoppers. To hit that deadline, the
three-year-old New York company, which has made 50 products from
crowdsourced ideas, would have to do what it’s never done before:
manufacture in the U.S. “Usually you have months of freight time
to ship from China,” says Quirky founder and Chief Executive Ben
Kaufman. “But for Crates we knew we couldn’t afford the luxury of
weeks on the water.”
     The 25-year-old Kaufman, who grew up above an injection
molding factory his mother ran in Queens, hopes to bring half of
Quirky’s manufacturing back to the U.S. in the next 18 months.
With labor and shipping costs rising in China, companies are
looking for American factories to make certain goods, especially
when production can be largely automated, as in the case of the
milk crates.
     Kaufman thinks moving work back to the U.S. will make Quirky
money in the long run, partly by letting him eventually close its
Hong Kong office, where the staff has already shrunk from 12 to
four workers needed to monitor local manufacturers. “That was
millions of dollars a year,” he says. “Even if costs in the U.S.
are 15 percent higher, we still save 15 percent.”
     Kaufman has been contracting with Chinese factories since
2005, when he started his first company making iPod accessories.
Back then, Chinese manufacturers “fought hard” for his business,
but they have since grown “cocky,” he says. In contrast, for the
crates project, American manufacturers hustled to ship in time,
with employees calling in friends and family to help run the
production lines, he says.
     Quirky turned to Mack Molding in Arlington, Vt., which
designed and manufactured the original milk crates for a local
dairy farmer in the 1960s. American manufacturers have gotten
smarter and automated more to compete with off-shore factories,
says Larry Walck, Mack Molding’s director of business
development. “We … did things to make us more competitive, like
lessening the amount of time humans touch a product, so that a
part comes off a machine maybe 80 percent complete,” he says.
     When labor becomes a smaller chunk of the total cost, the
benefit of China’s lower wages diminishes, says Harold L. Sirkin,
an analyst with the Boston Consulting Group. Sirkin notes another
factor favoring the return of plastics manufacturing in
particular: the low cost of natural gas, which is a feedstock for
plastic polymers. The boom in domestic gas production “would give
the U.S. a very significant advantage in manufacturing plastics,”
he says.
     Many businesses don’t realize that China is not always the
cheapest place to manufacture. “Most assume that because wages in
China were at 58¢ an hour in 2001 that wages are still low,” he
says, “But you have to think about productivity, because the U.S.
worker is 3.2 times [more] productive than the average Chinese
worker.” Some of that is due to automation and better
manufacturing techniques, he says.
     Still, Kaufman plans to re-shore gradually, because the
upfront costs can be daunting. “If I had cash to burn, I’d be
more aggressive,” he says, “I can pay $5,000 to $50,000 to launch
a product in China. In the U.S., the cost would be 10 times that,
at minimum.” And some labor-intensive products, such as complex
electronics, will likely continue to be made overseas.
     Since 2009, Quirky has raised nearly $30 million in venture
capital. The company’s products, including a flexible power strip
and a kitchen gadget that sprays juice from citrus fruits, are
chosen from ideas submitted online and fine-tuned by 230,000
members. They’ve been sold in Bed Bath & Beyond, Toys R Us, and
Safeway, among other retailers, as well as on The
company had revenue of $7 million last year, and Kaufman expects
nearly to triple that in 2012, with Crates making up about 10
percent of sales. Quirky owns the product ideas and pays
inventors and contributors royalties. Last year it paid out $1
million in royalties to members—hundreds made $10,000 last year,
and some earned hundreds of thousands.
     Kaufman, who envisions Quirky as “the Proctor & Gamble of
the 21st century,” says his goal has always been to have
factories within driving distance. That way, he “could go out and
check in on products like my mom did, who went downstairs to see
her stuff being made.”

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