Offshore Sourcing to Grow

DN Staff

December 13, 2004

3 Min Read
Offshore Sourcing to Grow

Brian McNeill, President and CEO, Southco

Will the trend toward offshore manufacturing continue to grow? Yes. There are two fundamental drivers. One is the need to remain competitive by eliminating waste and reducing the overall cost (namely, labor and overhead). The second is the need for companies to aggressively pursue growth opportunities. As manufacturers move offshore and critical mass is created in areas like Mexico, China, India and Eastern Europe, these become attractive growth markets for companies to pursue as a "local" supplier, setting up production to meet the local needs. Many leading western companies have done an outstanding job in reducing waste and dramatically increasing productivity so they can more effectively compete with offshore manufacturers.

What are the downsides for the end users of the manufactured products? The potential loss of control over pivotal areas like lead times, inventory, quality control, intellectual property protection, speed of design changes and responsiveness to customer needs. In many industries, speed and flexibility are essential to competitive advantage. So some products are better targets than others to move offshore. Predictable medium-to-high-volume products that fall into the "commodity" and no-patent-protection categories would be a logical fit.

Will design move offshore, too? Yes. This is another trend that began several years ago for the same reasons that companies move manufacturing offshore-namely, cost reduction and the need to get closer to their overseas customers. Many companies move in this direction cautiously by only outsourcing the design and manufacture of a single part or component of their finished product. This protects the manufacturer from losing complete control over the final product. Recently, we have seen some of our customers pull back on moving design offshore to regain control of their quality and innovation processes.

How has the fastening business changed? It's not a screw or glue anymore. Fastening is becoming an area that can contribute to our customer's ability to compete. The ability for a latch to be stylish or to have an ergonomic feel is a benefit to our customers' customer. Customers are starting to realize that fastening/joining/assembly can add significant costs to their product. The problem is balancing the costs without sacrificing functionality. Perhaps the most significant trend is discovering and implementing alternative manufacturing methods in an effort to further reduce manufacturing costs.

How is Southco addressing those trends? We have established a strategic business unit (SBU) structure to become better connected to our global markets and customers within those markets. We have established a central new product development team to develop platforms that can be leveraged across markets and applications on a global basis. We have established manufacturing in China to be close to where our customers are and to serve the market needs of the region. We work closely with our customers to explore the total life cycle value of the fastener in their application, and create innovative ways to meet their needs with solutions not previously thought possible. We're minimizing installation costs by designing products with snap-in assembly that require minimal customer "adjustment" after installation.

Reach McNeill at [email protected].

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