Selective sourcing is the key
Here’s a working model for doing business in China
Commentary, by Ed Pope, for SBT
I have a unique background in that I have owned and operated a number of manufacturing and distribution companies. Some of those companies have been local and some have been global. About eight years ago, I purchased a local stamping company called Wire and Metal Specialties and brought it into our DexM Holding Co. That company has faced the challenges that all small manufacturers in the Midwest have faced — huge competition from China.
I saw this coming three or four years ago. I travel around the world constantly and saw that the Chinese had targeted US manufacturing. I decided to reinvent the business model of that company.
We turned DexM into a "supply chain management company" and also renamed it DexM WorldSource. The company sources stampings, fasteners, machined parts and plastic parts from all over the world and focuses on sourcing from China.
We use our engineering capabilities to both make parts for ourselves and now also to supervise Asian manufacturers. We use our technical expertise to quality-inspect the materials prior to shipment, and we actually take title to the inventory while it is on the container ship.
We then warehouse it in one of our warehouses around the country and deliver it on a just-in-time basis to the customer. In the course of the development of this business model, we have established exclusive agency relationships and/or direct operations in more than 20 countries around the world.
This enables us now to shop the world for the low-cost producer for stampings, fasteners and machine parts, as well as plastic components, fittings, etc.
We still maintain our manufacturing capabilities in Wisconsin and also have manufacturing in three other Midwestern States. We manufacture parts that are either hard to manufacture overseas because of quality reasons or regulatory reasons (such as aerospace) or cannot be manufactured overseas.
Under this model, the business has expanded on an average rate of 40 percent annually over the past few years and will continue that growth into the foreseeable future.
We think that manufacturers should look hard at their business model and consider using China as a possible asset to them in the future, rather than considering China as a threat. It took hard work, some capital and a whole mindset change in order to change our business model and culture.
In many ways, we are still working at it everyday. However, the alternative was a serious decline in the business and possibly not having a company when this was all over.
We found this business model change a necessary reaction to what we believe is a permanent change in the way manufacturing takes place in the United States.
The best value-added asset that US manufacturers can bring is the following: Customer acquisition, customer retention, customer service, quality engineering, logistics management and product innovation.
The Chinese are principally good at one thing — manufacturing. They really rely on US companies to provide the rest of the package to service customers.
If we can position ourselves as providers of the rest of that package and still provide manufacturing for short runs, prototypes, difficult-to-manufacture or protected industry parts (like medical or aerospace), then I believe that model will be the wave of the future of US manufacturing.
Ed Pope founded Corporate Financial Advisors of Milwaukee and DexM WorldSource of Waukesha. He has been to China more than 40 times.
Oct. 3, 2003 Small Business Times, Milwaukee