Downward price pressure squeezes contract manufacturers

Last updated on May 13th, 2019 at 02:23 pm

Milsco Manufacturing’s Perryman juggles chainsaws to keep company together

Southeastern Wisconsin’s manufacturers are scrambling for new ways to cope with rising employee health-care costs and downward price competition from foreign companies that do not provide health care benefits to their workers.
The double-barreled problem is posing quite a pinch for contract manufacturers such as Milsco Manufacturing Co., a division of Milwaukee-based Jason, Inc., that designs and manufactures seating products for vehicles used in agricultural, construction, industrial, forestry, recreational and turf-care applications.
Milsco president Clif Perryman is doing all he can to continue to pay a living wage to more than 500 employees.
"This is an increasingly difficult task in the face of year after year of double-digit health-care cost increases," Perryman said. "Our employees are unfortunately bearing the weight of a portion of these costs. We believe that chronic over-capacity created by the health-care-provider industry coupled with direct marketing to consumers by the pharmaceutical industry is at the heart of this out-of-control situation. Left unchecked, it will drive many more manufacturing jobs out of Wisconsin."
The threat of manufacturing jobs moving from the nation and even the hemisphere is on the rise, according to Perryman.
"There is an influence from international suppliers we have not seen in the past," Perryman said. "It has been present in previous times, but not like this. These offshore people are bringing with them international buying strength. We have typically tried to supply materials domestically, not because we have been focused on an excluding characteristic or want to have barriers of entry to our economy, but simply because we see domestic sourcing as a way to serve our customer in a superior way."
As original equipment manufacturers (OEMs) continue to demand lower pricing from contract manufacturers such as Milsco, Perryman has started to rely on some imported components, as well as automation and other tricks of the 21st century manufacturing trade.
"They want to pay less for the same product next year than they did last year," Perryman said. "An OEM may want a 1.5% price reduction this year — on top of a 3% reduction the year before. I have one customer that wants 8% over three years, while another just wants 3%."
Perryman said he understands the pressures his customers face, despite the rigors of meeting year after year of discounts.
"Most of these customers want to know that you are achieving these price reductions through honest cost reductions in your process," Perryman said. "They are not interested in a supplier that gives them back margin, because that is only good so long, and then they are not financially viable."
To meet the challenge, Perryman is increasing automation, which will immediately cut costs with reduced repetitive motion injury claims.
"We are redesigning our products," Perryman said. "In order to drive out unnecessary costs, we need top design for automation and for late configuration."
Late configuration, for Perryman, means purchasing some subassemblies for products in a finished form, perhaps from overseas. Then, as orders come in from OEMs, the various components can be readily assembled.
"I can buy components and subassemblies that have the larger labor content built into them and drop them into final assembly components," Perryman said, describing a shock absorber assembly. "When we get an order, we just pull the components, assemble them, and send them to the paint line."
Perryman has struggled with the process of sending manufacturing of some components overseas, when a primary focus of his goal is to continue to pay his current complement of employees.
"Why I would be willing to do that is the need to maintain work for 500-plus families," Perryman said. "I know Milsco is superior in serving our customer for these components. Whenever we meet the market price, we get the business. To the extent we can meet and greet the market price, we will be getting business. Sure, it will be assembly work instead of running a punch press."
Even as he jumps through hoops to reduce Milsco’s cost and keep existing OEM business, Perryman is pounding the pavement for business in new sectors. The marine industry, in particular, presents potential, as many boat manufacturers are beginning to outsource their upholstery.
"We are bullish on 2003," Perryman said. "We feel strong about our order book, and that opportunities are coming to us at a more rapid pace because people are looking to focus in on what they do well. We just launched into the marine industry, and that industry is moving away from upholstering its own seats. Where there was no market at all, because marine manufacturers did their own cut-and-sew work, now there is a desire to move out of that, and Milsco is prepared to move in there."

Jan. 10, 2003 Small Business Times, Milwaukee

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