The Supply Side: Bicycle maker says onshoring effort tough, but worthwhile

No one said it would be easy to shift manufacturing jobs from overseas back to the U.S. but Wal-Mart Stores vice president of U.S. manufacturing Cindi Marsiglio said the response in communities across the nation has been electric.

From GE light bulbs to Kent Bicycles and Element TVs the lights are again on at empty manufacturing sites in recent weeks as a handful of Wal-Mart suppliers answered the early call to put America back to work.

Marsiglio told The City Wire that the retail giant has 150 deals in the works with suppliers looking to onshore some or all of their production over the next few years. She said the last product lines to leave the U.S. have been some of the first to return. She said this takes time which is why Wal-Mart is giving the effort a 10-year window and $250 billion in buying incentives.

She shrugged off the notion that excitement around the initiative has waned, saying that energy seen around suppliers and government agencies remains high. She said Wal-Mart’s role in this venture is that of facilitator – making introductions, setting up review options for financing and making sure suppliers who want to explore U.S. manufacturing have that option.

GE recently resurrected three of its midwest plants that had been dormant since 2010 and they are now making halogen bulbs for Wal-Mart. Just a month ago these bulbs were being made in China. The company said it invested tens of millions of dollars in new bulb technology that are 28% more energy efficient and they have put 100 people back to work.

Marsiglio acknowledged that moving production onshore is not easy. She said in many instances processes have to change, technology must catch up and there has to be skilled labor, which may be in short supply in many communities.

KENT BICYCLES
Arnold Kamler, president and CEO of Kent Bicycles, told The City Wire that onshoring production has been a focus of his company for about four years because operating conditions in China shifted. He said Kent made bicycles in the U.S. between 1979 and 1990 before the cost advantages shifted to China. Kamler said 11 years of domestic production experience has been a huge advantage for the company as it sought to recruit a new U.S. management team.

He said the $4.3 million assembly plant in Manning, S.C., which employs 45 and the management team already in place is the start to moving some production back to the states. For now the U.S. plant is assembly only, but Kamler said as trained workers can be added over the next two years the facility will ramp up production to make frames, handle bars, rims and do the painting.

“Bicycles have not been made in the U.S. since 1998 so we are having to start from scratch and for now that’s just assembly. But by next year we hope to turn out 200,000 bicycles made in America,” Kamler said.

He said Chinese manufacturers typically steal their labor force from competitive companies, offering higher wages, which has led to inflationary costs and turnover rates of 15% to 20% per month. That, and the declining attitude of the Chinese worker, are part of the metrics that make the U.S. attractive for Kent.

CHINESE PARTNERSHIP
Unlike pure importers, Kamler said Kent’s manufacturing plant in China is also a 49% owner in the company since 2010 when his sister sold her interest.

“I negotiated a good deal with a major bike supplier in China who is not only a manufacturing partner but also a financial partner. We will import three million bicycles this year, so the U.S. manufacturing is still a small percentage of the total business,” Kamler said.

And it has to be that way for now, given the shortage of skilled labor and access to component parts in the U.S. But that hasn’t stopped Kamler from trying to recruit component part makers out of China into the U.S. Kamler said China is still a great place to build bikes but they are getting more expensive. He said the bikes made in South Carolina will be more expensive than they could be made in China today, but not as much one might think.

“Real estate and energy costs are lower in South Carolina than China, and steel costs the same. I’m hoping with good use of automation that within a few years we will be cost-competitive with China,” he said.

RIGHT TO WORK
Kent plans to employ 175 workers over the next four years as production ramps up in South Carolina. Kamler said the average wage at the assembly plant now is $14 per hour, and that would go higher as more skilled labor positions are added. One of the reasons Kamler said Kent chose South Carolina was because it is a right-to-work state.

“We also looked at Florida and Georgia because we wanted to be along the eastern seaboard, but Governor Nikki Haley made a hard sell. She can be quite convincing. We call her the snake charmer,” Kamler said.

The meeting with Haley took place at Wal-Mart’s 2013 Manufacturing Summit in Orlando. Prior to that Kamler said his Wal-Mart buyer had asked him two years prior if assembly would be possible in the U.S. He said the Summit got the conversation going again.

“Wal-Mart has definitely been a catalyst here,” Kamler said.

Kamler’s advice for suppliers looking to make products in the U.S. is to seek out the right manufacturing management team and be willing to spend the money to do so. He said it is very difficult for pure importers to start at ground zero with manufacturing.

“It is more than just finding an empty building and a small work force. It has to start with management insights in robotics and engineering. We were fortunate to have 11 years of experience making our products in the U.S. and cooperative professional partner in China,” Kamler said.

Marsiglio said she’s excited to meet Kamler’s assembly team on Wednesday (Oct.15) when the plant holds its grand opening events. Kamler said South Carolina and the local community of Manning has welcomed Kent and he feels somewhat like a celebrity in the midst of it all.

Kamler said the U.S. startup has come together quickly and while it’s not always an easy road, it’s one worth taking.

ROADBLOCKS
That road has proven impassable for Mel Redman, CEO of Redman & Associates. Redman was an early face of Wal-Mart U.S. Manufacturing Initiative. A long-time importer, Redman had planned to launch a brand new manufacturing facility in Rogers for his ride-on toy production.

But a major snafu with his product supplier — Hong Kong-based Sales Chief Enterprises — rendered the deal impossible.

Redman shuttered its Rogers plant last month after Sales Chief cut off their 60-day credit line and demanded full payment for the toys ordered for the holidays, according to a lawsuit filed in federal court on Sept 5. Redman was forced to suspend its small operation in Rogers until the matter can be resolved. He said closing the upstart venture was a last resort as he continues to try and make good on the orders promised to retailers ahead of the holidays.

Redman attorneys filed a motion Sept. 22 to extend the filing deadline for Sales Chief in the open court case to Dec. 26. Redman has sued Sales Chief for breach of warranty, misuse of trade secrets and breach of contract.

Wal-Mart was undaunted by the Redman troubles saying the circumstances in that situation appear to be specific to this manufacturer and its third party supplier. The retailer said it is not aware of any other similar problems with other onshoring efforts.