Purchasing Springs: Buy American Product
By Scott Pitney
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.
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?
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.
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.
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.
We would like to hear from you. What has your experience been with overseas
manufacturers? Please email us at email@example.com.
Please send inquiries to: firstname.lastname@example.org
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