THE LAST "(MAN)-UFACTURER" STANDING STRATEGY

     When you enter the lobby of Custom Leather's 60,000 sq. ft. men's belt manufacturing company in Kitchener's new Bingeman Industrial Park, the unmistakable smell of leather greets you.  For me, this smell takes me back to my early days of selling cutting dies to Kaufman, Greb, Bauer, Savage, New Balance and the many other local companies that once converted leather hides to shoes back in the 70's but no longer exist today.  Then I ask myself.  How is it possible then that Custom Leather, a company that has been making belts for over 40 years, continues to employ 75-80 people manufacturing about half its production right here in Ontario, while the remainder is imported from contractors in Asia?

     Some of the answer lies in the experienced management of its 6 owners, led by President Ken Ingram,  and their commitment to local manufacturing.  They employ state-of-the-art machinery, employ well trained, long term employees,  are ISO certified and practice Lean Manufacturing, purchase leather and hardware globally, utilize customized Manufacturing Planning Systems that integrate with their customers and ensure quick order turnaround, take advantage of government programs like IRAP and SRED to offset R&D costs, and are geographically diversified, exporting about half their volume to the U.S.  Some of the answer also lies in their unique market niche, doing the bulk of their production either as a private label supplier or under exclusive licences negotiated with leading brands like Tommy Hilfiger and Gap that they market to major retail chains.

     Nevertheless, the nagging question still remains.  For a lightweight, easy to ship, low cost product like men's belts, why doesn't Custom Leather just contract out its total production to Asia, especially when most of its North American competitors have done just that!  Wouldn't it save a lot of expense, not to mention the hassle of running a factory in today's globally competitive environment.  Ken Ingram doesn't see it that way.  For him, hedging your imports with domestic production makes perfect sense.

     For one thing, the ability to service their customer's changing delivery requirements, especially in the Canadian market,  with the right product SKU at the right time is one of their critical success variables; something that's difficult to do from Asian sources where lead times are measured in months not day.  This inventory management function has become even more important as retailers stock less of their own inventory in the face of uncertain economic conditions, and as credit to finance these inventories has dried up.   Sometimes believe it or not, it can also boil down to cost of manufacturing.  Depending on the style of belt, the labour content involved, the volume, and the who the customer is,  domestic manufacture is often as competitive as importing; especially if the cost of inventory financing, and the risks of returns and obsolescence of Asian sourcing are factored in. 

     Furthermore, when freight rates tripled in 2007-2008 as oil ran up to $140 per barrel, and the Chinese yuan and labour rates increased,  it made the cost of domestic manufacturing that much more attractive.  In fact, Custom Leather is continually benchmarking how much it costs to make individual styles overseas versus locally and adjusting their manufacturing versus importing strategy accordingly.  There is an old Chinese proverb that says; " we will carry you on our backs until you forget how to walk."  Custom Leather is trying hard not to forget how to walk.  They must be doing something right, Ken explains, since recently he's noticed that some of his competitors have begun to re-establish plants in the U.S.

     I have noticed that in many industries, there are always a few resilient companies like Custom Leather that continue to thrive and resist closing down their manufacturing completely.  I call this "The Last (Man)-ufacturing Standing" strategy.   If  you can survive as one of these Ontario manufacturers in these difficult economic times, you will be in a unique position to benefit when the turnaround occurs.  So the next time a Chinese agent or your accounting group approaches your company to entice you with the rewards of replacing all your domestic production with sourcing from foreign contractors, think about Customer Leather, their Last Man Standing strategy, and resist the urge to give in.  You never know what the future holds and as Ken Ingram observes, once you've shut down, sold off your machinery, and lost your experienced people, it will be much harder to start up again if conditions change.  In my next blog, I will talk about a recent bestseller written by the former chief economist at CIBC entitled, "Why Your World is About to Get A Whole Lot Smaller".  Once you've read it, it makes The Last Man Standing strategy even more compelling.