In 2009, the company decided to return all production to the U.S. after four years of outsourcing 30% of its manufacturing to China. The transition – completed in 2011 – has doubled Peerless-AV’s workforce to 500 and helped resolve quality and supply chain issues.
Reshoring – What is it and why do it?
John Potts | Peerless AV
Tell us a bit about Peerless AV – who are you and what do you do?
Peerless-AV is a leading designer, manufacturer and distributor of Made-in-the-USA audiovisual mounting, accessory and digital content delivery solutions as well as the industry-first Ciil™ fully sealed outdoor TVs for commercial and residential applications. The company’s products span off-the-shelf, commercial and custom flat panel, projector and tablet mounts; cables, AV carts and stands, medical carts and stands, and a wide range of other accessories; and wireless, kiosk, touch, digital audio and connectivity technologies that simplify today’s complex digital equipment installations. Peerless-AV manufactures over 3,600 products that serve original equipment manufacturers, commercial integrators and consumer retailers in 22 vertical markets.
How long were you outsourcing to China and what were some of the experiences you encountered during that time?
We outsourced about 30% of our manufacturing to China for four years. We quickly discovered that the cost advantages are not as great as people think they are, and that they are offset by quality challenges as well as serious problems with intellectual property theft. On the financial side, labor costs are certainly lower (although that gap is narrowing now), but you have extra freight expenses, inventory carrying costs necessitated by the long lead times required to replenish stock, third-party inspection obligations, legal fees and other ‘hidden’ costs. On the intellectual property side, our contract manufacturer in China was replicating our patented product designs – using our tooling - for competitors who were selling them cheaper in part because they had no R&D or tooling expenses. People talk about offshoring like it’s the Holy Grail, but – at least for us – it turned out to be made of tin.
Can you name 3 challenges that you faced when coming back to US?
The immediate challenge during the reshoring process was adding capacity to the physical building space. We invested over $25 million to buy and remodel a larger building with 300,000 feet of manufacturing space. We have also had difficulties finding skilled tool and die workers; to combat this, we created an apprenticeship program to help train workers in this trade. Finally, reshoring meant Peerless-AV would encounter lower profit margins. Our unit costs have increased 10-15% despite using automation that was not available in China.
What was the major factor that made you come back to US?
(besides manufacturing locally)…We had strong concerns about protecting our intellectual property. For the past 10 years, we have been seeing our products copied by Chinese manufacturers and this had become more and more prevalent. We were also concerned over the rising cost of labor overseas.
What has coming back to US done to Peerless Workforce?
Since returning manufacturing to the US, we have doubled our workforce to 500 employees. We are proud to say we are helping to employ Americans in these tough economic times.
Has quality and supply chain improved?
Both quality and supply chain have improved tremendously. We are able to fulfill any order that comes in – we don’t have to wait 90 days for product to arrive in the US. We are now able to supply product almost immediately. Product enhancements and improvements are quickly addressed. Instead of waiting for 3+ months, we are able to make improvements instantaneously.
Have your overall costs risen dramatically since returning to the US?
There has been a 10-15% increase in unit costs – which we have absorbed rather than passing it on to our customers - but some of that has been offset by getting rid of the hidden costs of Chinese manufacturing like extra freight and inventory carrying costs that I mentioned earlier.
What advice would you give to those thinking of outsourcing in the current economic climate?
Don’t do it. Be aware that it is likely that your intellectual property will be copied and the quality of your products will decrease. China is not as competitive as it was 5 to 10 years ago and the cost of labor is still increasing. Finally, be aware of the lead time on products. If you have to wait over 3 months for improvements, you may not be able to compete with your competitors.
What advice would you give to those thinking of reshoring?
Have a well-thought-out plan for reshoring . There are many details to include in the plan such as increasing physical space, purchasing new tools and growing your workforce. The entire process can take over a year and you want to be as prepared as possible.
Peerless-AV, a Peerless Industries, Inc. company, is a leading designer, manufacturer and distributor of Made in the USA audio-visual solutions. Our innovative product line includes flat panel mounts, projector mounts, wireless technology, motorized solutions, A/V cables, kiosks, A/V furniture, A/V racks, precision gear products, surge protection, screen cleaning products and a full assortment of accessories. A 70-year-old global company, Peerless-AV has remained at the forefront of the industry, creating new A/V technologies that push the envelope and provide ideal solutions to meet the needs of the consumer and pro markets, alike. Peerless-AV manufactures over 3,600 products that serve original equipment manufacturers, commercial integrators and consumer retailers in 28 vertical markets worldwide through direct sales representatives and authorized distribution.
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