Seattle Manufacturer of Beer Products Offers Glimpse into Re-shoring
With its "sell more beer" credo, Seattle-based Taphandles recently made the strategic decision to open two new manufacturing facilities in the U.S. instead of expanding its 450-employee factory in southeast China. Taphandles (www.taphandles.com) offers its brewery customers beer branding, design, promotional items, point-of-sale displays, signs, and hand-painted tap handles.
The reasoning behind Taphandles' decision to re-shore its production of signs, displays, and glassware branding echoes a recent study by the Boston Consulting Group titled "Made in America, Again" that suggests a manufacturing renaissance in America will unfold during the next five years, creating up to three million U.S. jobs. The gap between U.S. and Chinese wages is narrowing rapidly, and flexible work rules and government incentives are making many U.S. states into low-cost alternatives to outsourcing overseas.
Taphandles President and Founder, Paul Fichter, said he sees his company at the forefront of this trend in re-shoring. He has recently opened up a new 41,800 sq. ft. facility with 150 projected employees in the Seattle area, and a 52,000 sq. ft. facility with a projected 71 employees in the Chicago area.
Although Fichter's Chinese facility will remain open to manufacture the hand-painted tap handles, his decision to move the remaining manufacturing to the U.S. provides a strong example of the advantages many U.S. businesses are finding in bringing production back to America.
Design-2-Part Magazine recently spoke with Fichter on his decision to move some of his manufacturing to the United States. Following is a condensed version of the conversation.
D2P: Why did you decide to open two new manufacturing facilities in the U.S., as opposed to China?
Paul Fichter (PF): In both cases, shipping costs were an issue in terms of making bulky items, such as glassware, displays, and signs, where shipping is a huge factor when compared to their value. And we're just not able to get the lead time we need from China. Everything from China basically has a three week penalty on it. And then we also faced cultural issues in China where they want all of one order to be done at each step. So that actually adds a lot to the manufacturing lead time. Our manufacturing time in the states will be inherently shorter and our shipping time is shorter, so we're expecting a big benefit from lead time.
D2P: What economic factors in China helped lead you to your decision to open two new factories in the states?
PF: It's hard to get workers in the first place in China, and then there are the costs. Our wages have gone up 300 percent since we opened in 2006. But that's not so much the issue because we have such a small (work) base. But it's hard to get workers because of those rapidly increasing rates. We're having a hard time getting anyone to do our sanding. Our sanders in some cases make more than our management, and we still can't get people to do it. Labor availability is a big issue. So when you do capital investment, we can use automation here (in the U.S.) to take out overall labor. So our calculations are a wash on manufacturing costs. Some things are still labor intensive that aren't automatable, like hand painting with a lot of hand detail. That's going to stay in China. But on items where we can use automation to achieve things, we're finding our costs are at a wash, but we have this big lead time advantage.
D2P: What other advantages do you provide customers through your domestic manufacturing options?
PF: We're finding a growing number of customers who really want a U.S.-based product. I'd still say that's a minority, but it's a growing minority. Also, it's hard to sell a sustainable story out of China. Some people want reclaimed wood and so that's something we can do here (in U.S.) that we couldn't do in China.
D2P: Why are you leaving your tap handle manufacturing in China?
PF: The level of detail on our hand-painted tap handles is just extraordinary, and I haven't seen anywhere else in the world that can do the type of work coming out of southeast China. They just have this tremendous skill base there of people who have been doing this for decades. There's a lot of availability and they're really talented, and we've tried to do hand painting here, but it just hasn't reached the quality. You can't pay people (in U.S.) to do it either because it's such intense work. It's just not a skill we have here.
D2P: Do you think more U.S. companies will bring work back to the U.S. in the near future as you have?
PF: I think so. I think that China's economy is growing up and that people there have gotten wealthier and they want a higher level of living now also. So that time where we were bringing huge unemployed people into the workforce is gone. Now they're employed and they're not as hungry for work as they used to be. That's why the wages are going up so fast.
D2P: Do you see yourself on the leading edge of a trend to bring manufacturing back to the U.S.?
I do. I think other people are going to be doing our analysis and saying, "Yeah, let's not put up with all these hassles." Everything here is straightforward; the rules are straightforward, the currency is straightforward; and there are no varying shipping costs. The currency risk in China is also a concern. There's this huge uncertainty with what's going to happen with the currency there. There was a huge disparity in costs that is now going away, and so as those cost differences go away, it just gets more convenient to manufacture here.
D2P: The cost of computer automation in the U.S. has dropped. How does that affect your business?
PF: Well, what makes it all possible are the interest rates are low right now. The SBA is eager to loan money to people with good businesses, like ours. A huge factor, and something I really want to highlight, is the bonus depreciation rule. So that when you're buying capital equipment, instead of it depreciating over seven, 15, or 30 years, you can depreciate it all this year. There's no net cost to the government; it's just timing. So instead of giving our taxes now, we can give them in later years. If we depreciate it now, we don't depreciate it next year. So actually our Woodinville factory is completely financed by the savings in taxes that we got from investing in our Chicago factory. And it's not costing the government. I wish they would extend that, instead of just a one-time thing for 2011. If they made that part of the code, then you could depreciate capital investment immediately and that would help us keep going.
D2P: Your company is growing at a rapid pace. What do you attribute that to?
PF: Taphandles has focused its energy on beer. Our position has been we're going to be the best people at helping breweries sell beer, and that nobody else has been on that same focus. So I think that focus has helped us. Draft beer is a growing industry right now, and beer overall is extremely stable. People drink beer when they're happy and people drink beer when they're sad. So we happen to be in a good industry.
D2P: What are you looking for in a workforce for your two new factories?
PF: The big thing about putting it in Seattle is that there's this huge Boeing supplier base that is already making a lot of CNC pieces. We're not really hiring Boeing people, but there are ancillary people from a supplier base that have all these computer-controlled machinery skills. And a lot of those companies that have been supplying airliners or Boeing in the aircraft industry have declined lately. So there's a lot of available talent here in Seattle that has the kind of training we need in running these machines. Chicago has a tradition of printing, so we've also got just tremendous talent to pull from there. Our machinery is capable of very difficult printing and we didn't expect to be able to learn how to use it right away, but on our first try, we just were amazed at what they could do. We're happy we found such a great talent pool in Chicago.
D2P: Have you acquired any new machinery along with the expansions?
PF: We spent $2 million dollars on super high-tech equipment in Chicago and about $1 million in Seattle. We brought our flatbed printer–HP FB700–over from our factory in China. We decided it was better to use here, so we actually shipped it from China to Woodinville. We had difficulty operating it in China. That was actually one of the things that got us started. We didn't have the talent in China to operate it and HP couldn't supply us with fresh ink to China, and so it wasn't usable in China.
D2P: By bringing some production back to the U.S., do you foresee any opportunities opening up for U.S. suppliers that you might outsource to?
PF: Most of Taphandles' supplier base for our U.S.A. factories is domestic. It doesn't help lead time much if one item comes from China and the whole order has to wait. Taphandles does most of our manufacturing in-house, so we can control the quality and lead time of our products. We do not do much outsourcing, either domestic or overseas. I do not consider product from our wholly-owned factory in China to be outsourced. Finished product coming out of China will continue to be made mostly in China. A major example is that our glass printing factory in Chicago will be buying most of our unprinted glass from Libbey and Anchor, both of whom manufacture most of their glass in the USA.
D2P: How did you start your company?
PF: I was looking for a job and thinking about starting my own business. That's when Taphandles took off. It was something I could do with very little capital upfront. I bought my first machine in Home Depot for $800 and just started making them (tap handles) myself first. So the first handles were made on the balcony of a one-bedroom apartment in west Seattle. But the China thing had been part of my plan from the start. So while I was making those first ones from home, I was working on getting suppliers in China, and the people that run my factory today are actually the people I first contracted with in 1999.
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