New U.S. Manufacturing Facility Meets Industry Needs for Quality, Service, and Innovation
A domestic manufacturing strategy is enabling a maker of custom seals to be more flexible and responsive to customers while providing higher quality at competitive prices
Price pressures from overseas competitors have been known to affect companies in different ways. Elisha Tropper, CEO of Cambridge Security Seals (CSS), decided to make the most of what he considers his company's strongest selling points--product quality and customer service--by bringing Cambridge's manufacturing closer to its customers. Last fall, the company began manufacturing custom security seals at its new 25,000-square-foot facility in Pomona, New York.
Cambridge Security Seals (www.cambridgesecurityseals.com) was formerly a division of Cambridge Resources, a 60-year old global manufacturer of industrial products, until December 2010, when CSS transitioned into an independent entity. One of the company's first business moves after separating from Cambridge Resources was its commitment to build and operate a U.S.-based automated manufacturing plant to service its rapidly growing customer base in the dynamic North American security seals market.
"At a time when many in our industry are looking to expand their overseas manufacturing with the goal of reducing costs, we developed a business model based on strategic domestic manufacturing that enables us to provide higher quality products with quicker turnaround times at competitive and stable pricing," said Tropper in a statement. "Launching our production in the U.S. enables us to be nimble in our response to customers, while facilitating the kind of innovation that can only emerge in a customer-focused design and manufacturing environment."
The company designed its new U.S. facility to make use of standard and custom automation, as well as "green" technologies that include LED lighting, smart HVAC systems, and electronic business systems that are said to yield dramatic energy savings while providing a paperless workflow and office environment. While providing a glimpse of what could become "the new face of manufacturing," the plant's automation and energy efficiency enable CSS to control cost and quality in an energy-intensive injection molding environment.
Cambridge Security Seals provides a wide variety of custom plastic, metal, and electronic seals, along with other aligned products that deter theft, secure a chain of custody, and provide evidence of tampering. The company services customers in numerous industries, including freight logistics and distribution, trucking, retail, cash handling, airlines, rail transportation, government, pharmaceutical, food and beverage, medical, and agriculture.
"The unique market dynamics of the security seals industry provide an immediate opportunity for us to meet customer needs with quality products, customer responsiveness, and value," added Tropper. "We are committed to addressing this opportunity with the capabilities and flexibility required by organizations seeking a reliable supplier of top quality security seal and asset protection products."
Elisha Tropper spoke with D2P recently about Cambridge Security Seals' domestic manufacturing strategy. Following is an edited transcript of our conversation.
D2P: What are some of the applications for your security seals?
Elisha Tropper: Cambridge Security Seals is a manufacturer and distributor of security seals, which are a wide range of products specifically designed for security purposes and tamper evidence purposes, in the logistics trucking industries, cash management/cash handling industries, retail loss prevention industries, and a variety of other vertical markets where the chain of custody is important and needs to be managed and secured.
They're not locks per se. A lock has a key or a combination and can be opened and closed many, many times. These get secured once and can't be resealed. Let's say I've got a million dollars' worth of stereo equipment and I want to ship it from point A to point B. I load my truck up at point A. Let's assume there's only one way to get into that container. I take seal number 1111555 and seal the entrance to the container. I write down that number or I email that number to the receiver. When the container arrives, the receiver--before he accepts the shipment--looks at the seal. If it's the same number, he can sign off on it knowing it hasn't been tampered with.
This prevents "shrinkage," which used to be a somewhat common problem, where a trucker would tell his friends, "Look, I'm going to be at this rest stop at this time. This is what's going to be in the truck." And then he would swear, "I don't know anything, I didn't open the door, I didn't do anything, I don't know how it got out." And things disappeared.
The other issue is, when it comes to shipping food and drugs and beverages, where you're worried about tampering, where you're worried about someone slipping something into it, this basically assures you that these openings have not been opened since it left the factory.
In certain types of fields, they're used on every container that comes across the ocean. A seal basically says that what was loaded and inspected at point A is what's being unloaded and inspected at point B.
D2P: What are your biggest markets for your security seals?
ET: The major markets would be the trucking and logistics industries. If you drive down the highway, you'll see containers on trucks, and virtually every one's got a seal on the back of it--multiple seals, in some cases. The retail loss prevention industry is very big, both in terms of their shipping between stores, but also within the distribution centers and on the store floors. For example, let's say Wal-Mart is going to send out 500 iPads to every Wal-Mart. They're going to load up a bin or a tote of, let's say, a hundred iPads in a tote. Each one of those totes is going to have a seal on it because that's going to prevent anyone along the way from just pulling one out and flipping it in their pocket. International freight, where every container being shipped has a boat bill on it, is also a big one.
D2P: Can you talk a little bit about the U.S. market for security seals and what's driving it?
ET: The U.S. market for security seals is probably the most dynamic and diverse market in the world for security seals. More industries use it here than anywhere else, and they come up with a lot of different uses and applications for it.
The U.S. has a little bit of everything here. In terms of logistics, we do air, we do rail, we do ship, we do trucks, and we do sea freight. We do a little bit of everything. Just the freight alone is probably as diverse as anywhere else in the world, and each of those has unique applications from the seals standpoint. In addition, we have a very large retail environment, both from the high end all the way down to the mass discounters and the dollar stores, all of whom have varied uses for seals.
The cash handling business is a big part of the industry. That includes cash bags that are being used in everything from payroll, to armored cars, to casinos, to amusement parks, to banks, to retail stores. For anyone who's handling cash bags and payrolls, seals become a serious part of that business because you have a bag that can be torn open. So it doesn't make any difference if you put a lock on it or not. If someone wants to break into it, they're going to just tear the bag open. What you do need, though, is, if your employees are transporting these bags, you just want to know that when they show up with the bag, that they haven't stuffed their hands in it and taken anything out of it. So that's where it becomes a very, very big part of it.
On the pharmaceutical side of things, it basically lends legitimacy to the product, especially in markets where there's so much counterfeiting and things like that. It basically assures you that the product is as intended--that it is the original product--as well as the fact that it hasn't been tampered with. These are all--the food industry, the grain industry, the beverage industry, everyone from the Cokes and Pepsi's, to the Monsanto's and the ADMs, UPS, FedEx--these are all gigantic users of security seals.
D2P: What led you to build the new facility in the U.S.?
ET: For years, we've watched the evolution of the manufacturing process, including in China, and the offshoring of manufacturing from the U.S., and the outsourcing to specifically China. In recent years, we've watched as the pendulum has started to swing back the other way, driven by really a half a dozen key factors that are taking away from the reasoning, or the logic behind going to China in the first place.
Whenever anyone talks about this, the first thing that everyone jumps up and says is "labor costs." There are a couple of factors that are now in the market that really have changed the playing field dramatically. The first is that the wages in China have been rising steadily over the last couple of years, and we're not talking about a little bit at a time. You're talking about 20 to 30 percent per year, in some spots. It still doesn't equal--they are nowhere near equal the rates here, but the difference starts to become marginalized.
The second thing is that the manufacturing climate in China is slowly starting to change. The costs of operating in that environment--both in terms of infrastructure costs and, more importantly, the social costs, the environmental costs, certain regulatory costs--are now becoming significant. It's not that they're anywhere near what they are in the U.S., but things that were non-existent even as little as five, ten years ago, are now becoming significant costs. There's been a unionization of workers through the government. The social benefits that are being provided now are higher than ever. The scrutiny on child labor and on other kinds of workplace environmental issues, such as the hours and the number of days, and things like that, has increased.
It's also become a much more migratory population. It used to be that wherever the workers were, if you could employ them in that spot, that was fine. Now, they move to wherever the better paying jobs are. This rising middle class is driving a lot of wage growth, and all of these things are contributing to higher cost overall.
Another very important factor is the cost of freight, which has risen with energy prices rising. But also, as more and more items get shipped, there's greater demand than supply. So freight's rising. Another factor that's important to look at is that in years past, commodities were available at cheaper prices in China, whether it's because of the government subsidizing these things or manufacturers of commodities willing to sell at lower prices in China. The fact was that if you needed certain types of plastics or metals, you could buy them cheaper in China. But the scrutiny on that has really made that go away. That's really been solved, so now they don't have that advantage on commodity pricing.
Also, the government in China has purposely kept the currency valuation where it would be most competitive against the U.S., by keeping it down. They are having a harder time doing that now. It's come up slightly, and it's going to continue to come up as they are forced to recognize what the reality is, as opposed to artificially keeping their currency low to enable exports.
Another factor is that now, as China has attracted so much investment, investors from the world are looking for profits. In the past, for a lot of Chinese manufacturing companies, it wasn't about profit; it was about the Chinese government setting them up and keeping them in business to employ people. Now, they are looking for Western-sized returns, and they have to now start charging for profit, and that's raising their prices a little more as well.
In addition, what's been going on here is the rise of automation, and we've now had enough generations of automation here where the price of automation is going down dramatically. The capabilities are rising quickly, and the costs are coming down dramatically, so it enables you to work much more efficiently, manufacture here and keep your costs down, and offset a lot of the labor cost differential.
D2P: Can you talk a little bit about the types of automation that you're using, and the advantages that they provide?
ET: We combine certain off-the-shelf automation--conveyors, servos, and things like that where you computerize certain processes--with specific application-oriented types of automation that we custom build to meet our in-house needs. We build the robotics and the specific application- oriented type of automation that enable us to go from raw material to final product without any human interaction. And that does a few things. It's magical in terms of quality control. Because there's a much greater level of consistency when you automate production, there are much higher levels of control, and, especially in a business like this, where each product is individually numbered and has to be on the one hand identical, and on the other hand unique, it enables us such a level of control, tracking, traceability, and timing, which is also a critical function of this. We're able to take the whole business to a new level.
By the way, that's another very important reason why manufacturing here --in the U.S.--is now much more attainable than ever. Because customers here, based on the economy, and based on years and years of Lean Manufacturing and just basic lean business techniques, want to keep as low an inventory as possible. And that means things from Just in Time to Min/Max programs, but they really are looking to keep a very low inventory, which means they need quick turnaround time. They can't wait the 6, 8, 10, 12 weeks that it requires to bring a product from overseas.
So manufacturing here on a very quick turn basis becomes a very important selling feature and an important part of our business model.
Also, there's far more customization than there ever was. Everyone feels now, "If I have a unique application, instead of building my application or living with what the options are out there, let me find someone who can create the solution for me, exactly the way I want it. Let me customize." We get a lot of that. We get a lot of customers who say, "I have this particular application, I'm using this product now, but it really isn't perfect for me. I really could use something different, or I really need something better, whether it's stronger or shaped differently, or contains something different, or has a different type of color, or feature, or something like that. This has become part of the business, and it's now kind of standard for us.
D2P: How does your domestic manufacturing strategy allow you to provide customers the type of flexibility that, say, overseas manufacturers aren't able to provide?
ET: It starts with turnaround time. It would be a wonderful world if everyone knew, three months to six months in advance, exactly what they were going to need down the line--what quantities, what colors, what numbering systems, whatever they needed, and then we would have time--we could find the absolute lowest cost place in the world to make the product. We could do it, and then the world would be wonderful. But you can't do that anymore. Customers wake up one morning and realize, "Oh my gosh, this is what I need," or "I have a need that changes. I'm not willing to wait three months for it; I'm not willing to wait two months for it. I want it as soon as possible."
By manufacturing here, we're able to turn it around much, much faster, not just in terms of production, but in terms of development as well. We can develop a product faster by having our R&D lab under the same roof as the manufacturing facility, where we can basically tool it up ourselves, develop it, test it, develop it, and then put it into production faster than you could doing anything like that overseas.
D2P: What types of services does your R&D lab provide--what types of things are they involved in?
ET: It's everything from design to custom fabrication to testing. Sometimes it's as simple as we want to try a new mixture, try and get a stronger tensile strength. We want to make sure that this product will be suitable for the application that the customer is seeking for it. So we can conduct that in house now, and do it all much faster and a lot more accurately. When you have control over those processes, you can have a lot more confidence that it's being done right every time.
The other thing that it enables us to do is have customers come in and watch us test it, and participate in the process, because we're local. In the U.S. nowadays, I consider anyone manufacturing in California or New York, local. In a global economy, domestic means local. That becomes an important part of both our business model and our customers' business model. You reduce the time and the difficulty, and the chances of things going wrong just get reduced so dramatically when you do this.
Another key factor are the interest rates. You can now manufacture in the U.S. for lower cost than you could manufacture a few years ago because interest rates are lower. So not only does that mean that your capital costs are lower, but it means that your suppliers are able to charge you a lower price. You're able to buy and finance at lower rates; and you're able to even hold certain parts for longer, or keep a larger inventory on those rates. If rates go up, as they will one day, that will be offset by the fact that your customers are going to try to keep an even lower inventory, so they're going to look for even shorter turnaround times, which benefits us even more. So the interest rates happen to be our ally in this case, whether they're low or high.
D2P: Your new facility includes significant investment in green technology, such as LED lighting, smart HVAC systems, and electronic business systems that provide energy savings. Can you talk about the cost- saving impacts of having built these energy-saving technologies into the facility?
ET: We had to decide what to do when we were looking to build a facility. We could have started from scratch; we could have found a state-of-the-art building. We instead decided to buy a 40-year-old plant, give or take, and we completely gutted it and remodeled it. And that gave us the opportunity to put an infrastructure in place that was extremely energy efficient.
The LED lighting, for example: We were able to put in a lighting system that from day one not only reduced the amount of energy we were consuming so dramatically, but it also paid for itself by the savings. Our utility bill on the lighting portion of the bill--there's a lot of lighting in this building--dropped in the first month almost 75 percent on the basis of LED over the fluorescents. So that became an important part of it.
The HVAC was also designed into this building--again, you're talking about the ability to keep costs down. In a manufacturing environment, HVAC becomes a very important part of the environment, of the manufacturing process. It's not just the offices, but the entire building is going to be HVAC, and that's an important part, especially when you're dealing with plastics and injection molding machines. They get hot, and you're trying not to have the machine sweat, so to speak. These are very significant cost factors, and by using these green technologies, not only do we keep our costs down, and it's environmentally sounder, but it's actually an enabler in the process.
D2P: You mentioned injection molding. What are some of the manufacturing processes that you use to produce the seals, in addition to injection molding?
ET: Right now, we're only manufacturing plastic seals here, and they're all injection molded. We use a variety of different types of finishing on them. We use lasers as well as foil stamping.
D2P: Getting back to the energy saving advantages that you have, do you have any plans to further advance that by using solar panels, or anything of that nature?
ET: We've looked into solar. Right now, the numbers really don't make sense for it yet, for New York State. If we were in New Jersey, the numbers would make sense because of the rebates from the government. Hopefully, New York will come along soon, and as soon as that happens, we will embrace it.
D2P: Do you also outsource any of your manufacturing processes to U.S. suppliers?
ET: Yes. There's some of our equipment that we work with U.S. suppliers to construct. We design it; they fabricate it. We do a lot of the work in house, but some of it--if we can't do it better than an outsider's going to do it, then we're not going to do it ourselves. That's been our model, really, for any product that we choose to manufacture. If we can't manufacture it better at a lower cost, then we're not going to do it ourselves. And that goes for our components as well.
Automation, by the way, is really where I believe the future of American manufacturing is. If we're looking for a solution for jobs in the manufacturing sector in the U.S., it's not merely the straight production jobs. I think it's much more in terms of the fabrication of automation and of equipment. That's where, I think, you can have a real expansion of jobs because, as companies learn more and more to manufacture here and to automate here, it's supporting that automation. You're talking about a higher skilled type of job that's going to become much more important as we move into this type of work.
D2P: So what's your outlook for Cambridge Security Seals after having built the new facility and having it up and running for a month or so?
ET: We are in a very competitive marketplace, but we're producing a better product. We're producing it at a cost that's no higher than what's being imported, and we're producing it with a much faster turnaround time, and within an environment that allows us to work with our customers to develop new solutions on customized products at a rate that they've never experienced before.
So I think we're set up to really succeed in a very large way here. From a value perspective, if I'm a customer looking at what Cambridge brings to the table versus the competition out there, I have to give them a very serious look because, certainly, what we're offering, just on a dollar basis, on a quality basis, and on a service basis, is a very enticing package.
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