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Purchasing Springs: Buy American Product


By Scott Pitney
July 14, 2006

Thanks to more sophisticated means of transportation, the world has become a smaller place. It's true that there are spring manufacturers all over the world and buyers have more flexibility in choosing a spring manufacturer because of the ever-expanding global market. Beginning years ago, U.S. spring buyers looked south to Mexico and South America for cost savings, but as spring demand increased in these countries, labor rates increased as well and the initial cost-savings began to shrink. Buyers looked elsewhere for countries that had low labor rates which subsequently lead to lower spring prices. As an example, today, China and India are two countries that can be considered the new "Mexico and South America" of the spring industry.

What are the advantages and disadvantages of pursuing springs outside the United States and more importantly - is purchasing springs overseas right for you and your company?

Advantages

Lower price is the obvious advantage and the reason why many companies first seek an overseas spring manufacturer. In many cases, the same spring made in America can be priced at 30-40% less, per unit in China or India. To see for ourselves, Katy Spring took a spring that we sell to our U.S. customer for $.012 ea. (USD) and had it quoted by a Chinese spring manufacturer. The price we were quoted was $.008 ea. (USD) - a savings of approximately 33% or is it?

Other Considerations

As fuel costs continue to rise around the globe so do transportation costs. In our experiment, we asked the supplier to quote the price "delivered" meaning they pay the freight. Sooner than later rising freight costs will have to be passed on to the U.S. buyer. As a result, the unit price of the spring will rise. Katy Spring also had the spring quoted with Katy Spring paying the freight. The spring price was of course lower, however to bring the freight in from overseas required a painstaking process involving lots of time and paperwork, which incurs more hidden costs. The other option is to use a freight broker. Using a freight broker reduces the headaches of handling the paperwork, however freight brokers are not free, and again cost is added to the spring. The bottom line is that overseas shipping costs are on the rise and will unlikely ever be less than pound for pound domestic shipping costs.

Raw materials continue to increase with transportation costs. Many raw materials have to be imported because of lack of metallurgy technology, mainly in China. Many Chinese wire and spring manufacturers have not learned how to adjust their spring material composition through heat treating and other metallurgical techniques. As a result of the need to import raw spring materials, there is no price advantage as far as raw materials are concerned. Many companies that have experienced quality problems (in regards to the functionality of the spring) with springs purchased from China suspect problems with the raw material. However, most of these springs in question are found to be made from raw spring materials that do meet U.S. standards. (Reference).

According to the Chinese Spring Industry Association, there are 1,100+ spring manufacturers (mid-size and larger) in China. (Reference) Along with the spring industry boom in China and India come stiff competition and subsequent price wars. These price wars have made it difficult for these overseas spring producers to reinvest in research and technology. With the increase in the spring industry and other manufacturing entities, economies are improving along with wages for workers. This trend could gradually increase labor costs as it did in Mexico thus creating higher prices long term.

The demand for just-in-time inventory and shorter lead times continue to increase throughout the spring industry. Overseas suppliers must carry higher amounts of inventory in order to guarantee on-time delivery. The higher inventories, along with the need for space, warehousing, and other costs associated with inventories will more than likely have an effect on costs that may shift back to the customer.

Customer Service plays a vital role in the Spring Industry. Like many U.S. companies have recognized, especially in past decades, their product is Customer Service and quality is not only measured in terms of the product that is produced, quality is also measured in terms of Customer Service. For example, when calling a company for assistance, a recorded message will say, "You're call may be monitored for Quality Assurance". These types have companies have recognized that their product is in fact, Customer Service and the manner in which their customers are serviced is vital to their business. In the spring business, the product is a formed metal component and a quality spring must be produced by the manufacturer. In a less than perfect world, sometimes there are problems. When there is a problem with the product, in this case a spring, quality then shifts to how well and how quickly the spring company responds to the problem. If a spring does need to be remade, chances are the end user is already behind and will require a very short lead time to replace the faulty product. Domestic spring manufacturers have a huge advantage in responding to these types of situations.

The Chinese have limited spring design capability according to a recent article in "Springs" magazine. "Today, Chinese spring makers still mainly produce products according to the blueprints provided by the clients, instead of designing the blueprint according to the requirement of clients." (Reference)

Overseas manufacturers certainly have a disadvantage in responding to U.S customers' questions and problems. The first challenge for these overseas companies is the language barrier. For the Katy Spring experiment, we communicated with a rep that could speak and write very good English for the initial buying process. However, when we had questions regarding their "index capabilities" for example, communication began to breakdown. The spring industry can have a "language" all its own and it can be difficult at times to "translate" what a U.S. customer is looking for into "spring language", let alone for a manufacture who's native language is not English.

In a business climate where speed and timing are essential, customers demand quick answers and rapid response time. The Far East companies are generally asleep while U.S. companies are working. In many cases in can take up to a day to get even a simple question answered such as, "What is my lead time?"

Overseas financial transactions can be a challenge. Given the amount of time for transactions to be completed and the risk of never collecting funds, many overseas manufacturers require cash payment up front in order to minimize cash flow problems. Credit Cards have eased some of the burdens involved with overseas cash transactions.

Conclusion

There is the moral question about purchasing overseas. Shifting money outside the U.S economy is still thought by some companies and consumers to be a disloyal act toward American manufacturers. Moral decisions tend to be more personal than business decisions thus the reason for "Made in the U.S.A." labels to be printed on many products as an advertising effort by American companies to show their American loyalty for the moral -conscience purchaser. It can be argued that by putting cheaper, overseas components into a product makes a company's end-user product more affordable thus creating other indirect labor positions within the company such as sales positions, accounting positions, engineering positions, and so forth. That being the case, direct labor jobs may decline, and at the same time, indirect labor jobs increase. The net effect is that U.S economic dollars are not necessarily lost, but shift to different types of jobs which can many times be higher paying technical positions.

With everything considered; increased transportation costs, increased labor costs, raw materials, inventory, delivery demands, service, technical knowledge, communication, and financial transactions, companies have to carefully evaluate all of these factors before making a decision to buy overseas. Once the business relationship is established, is the company willing to send employees overseas for plant visits, which are required by many U.S. manufacturers' quality systems?

A Global economy has been with us and will be with us for a long time. China and India are far from their manufacturing capacity as are other countries. It's important that companies keep an open mind to these shifts, at the same time, not being to reactive by making a decision solely based on one feature or benefit of doing business outside the U.S.A.

We would like to hear from you. What has your experience been with overseas manufacturers? Please email us at scott@katyspring.com.

(Reference)
"Springs" July 2006, Volume 45, Number 3 A Publication of the Spring Manufactures Institute

 

 

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