|Suntron employees assembling ZeeVee products.
ZeeVee, Inc., a developer of high definition video distribution products, recently moved its overseas contract manufacturing operations to Massachusetts from China, where it had been manufacturing since introducing its first-generation products about five years ago.
During the initial product development phase, ZeeVee had determined that U.S. manufacturers couldn't adequately support their business model. As the product line evolved, ZeeVee management reassessed the decision after factoring in scale and total cost of procurement. While generally satisfied with the relationship with its Chinese manufacturer, a product shift from consumer to commercial gave ZeeVee an opportunity to reconsider the best type of manufacturing arrangements for its business. After extensive re-evaluation, ZeeVee partnered with Suntron, a North America-based manufacturing services provider whose capabilities matched those of Chinese manufacturers, while also offering serious logistical, cost and manufacturing benefits.
Eventually ZeeVee halted Chinese manufacturing and shifted its operations to Suntron, which has manufacturing facilities in Massachusetts, just a few miles from ZeeVee's headquarters. The jobs created were a real boost to the local community, and the successful switch has given the fast-growing company lower overall costs, simpler logistics, and faster shipping time, as well as improved communications, rapid prototyping, and better response-time on manufacturing issues.
Started with China
ZeeVee was originally founded in 2006 to connect home entertainment, computer and the Internet. As the company matured, its focus changed from the consumer market to commercial HD video distribution within hotels, airports, restaurants, bars, schools, hospitals, and other areas high quality video is shown.
Before too long, the shift from consumer to commercial products began to have an impact on the company's high-volume manufacturing business. In China, product builds were only performed every month or two, and the units produced were enough to last for long periods of time. The large, batch-oriented nature of production — required to keep costs low — limited ZeeVee's agility, making it difficult for the company to implement a continuous quality improvement process or introduce product variations.
According to Vic Odryna, co-founder and CEO of ZeeVee, the infrequent manufacturing operations also meant the company had to tie up huge amounts of cash each quarter before manufacturing even began, on products that would not be brought to market for months. Then, the products might be on a ship for two or more months, tying up cash for even longer. "It's almost like a pre-payment — paying for products even before we have them in the building," he says. Other related issues included customer fallout due to damage incurred during ocean transit, and the headaches of dealing with replacement costs and insurance.
Shipping Logistics Issues
The situation led to shipping logistics issues. Planned orders could be shipped by boat at a reasonable cost, but large, quick turnaround customer orders required use of expensive air freight options, which boosted costs considerably.
Eventually, Odryna asked himself if it might be time to reassess the actual cost-effectiveness of manufacturing in China. At the same time, he also took a hard look at what benefits might accrue from manufacturing close to their headquarters in Littleton, Massachusetts. The company was eager to gain product flexibility, rapid prototyping, and design for manufacturability, which would help to sustain the company's high growth rates while achieving continued customer satisfaction.
Seeking U.S. Partner
Odryna assigned his operations manager the task of looking around for possible manufacturing partners located near their design headquarters. They eventually selected Suntron Corporation, an EMS provider headquartered in Phoenix, Arizona, which provides electronics manufacturing services and solutions to support high reliability products within the network, telecommunications and other markets.
During discussions, Suntron and ZeeVee evaluated all the costs involved in the total cost of procurement (TCP), instead of simply unit manufacturing costs. Such costs include the so-called soft costs, like cash cycle times, true shipping costs, insurance, lack of flexibility, turnaround time, fuel surcharges, custom broker fees, and travel/support costs.
Suntron jumped at the opportunity to demonstrate that U.S. manufacturing plants can be cost competitive. Its state-of-the-art 41,000 square foot facility in Methuen, Massachusetts specializes in system design, integration, new product introduction, direct fulfillment, product life cycle management, supply chain management services, and embedded computing solutions for OEMs and large end-users.
ZeeVee's new product needs resulted in Suntron hiring to fill 20 new manufacturing positions. The positions were a good news story that was a source of great excitement in the local community, which had lost its share of manufacturing jobs.
According to Jon Saunders, Suntron's Methuen plant manager, "Much of the infrastructure needed for ZeeVee's products already existed at Suntron. The plant was already functional, and the project was a great way for us to grow our business."
According to Saunders, ZeeVee benefited by the flexibility that Suntron offers over a Chinese manufacturer. "We can customize our services to what the customer needs, while larger Chinese manufacturers often can only+ offer cookie-cutter approaches that don't deal well with fluctuations outside the norm," says Saunders. He adds, "We are small enough to care about the project and offer flexible services, while large enough to make a difference." In just a short time, Suntron and ZeeVee got the manufacturing operations up and running. The return to U.S. manufacturing has greatly increased ZeeVee's ability to serve its customers quickly. Suntron is working to ensure that products hit the shipping dock virtually on the same day as they are ordered; the company offers direct order fulfillment capabilities, which also improves delivery times. Domestic manufacturing results in an increased flexibility that facilitates the product configuration changes ZeeVee was looking for.
Cash Cycle Issue Resolved
The cash cycle issue is greatly reduced because U.S. firms like Suntron do not require up-front payments for inventory. In addition, the communications benefits are enormous. Being in the same time zone, ZeeVee no longer has to wait 12 hours or overnight and halting production until the factory is open to get an answer to any issues and questions. Now the company can immediately resolve issues and keep the line rolling.
The firm is growing rapidly, more than doubling every year, and initially ZeeVee had a concern that working with a local manufacturing partner might be an impediment to growth. No problem. Suntron has a number of other facilities for scalability, including a manufacturing facility in Mexico. Knowing that Suntron offered other solutions should ZeeVee require other options resulting from expansion gave the company a high comfort level. "As we grow, we are comfortable knowing we have a partner who can work with us to handle an increased volume." Suntron expects that as ZeeVee's business continues to grow and they introduce new products, they will be growing along with them, expanding to 30-35 employees. "Their success is going to be our success," says Saunders.
ZeeVee has also met its goals of improving product design and development. When working with the China manufacturing partner, all development work required hopping on a plane for a 16-hour flight and losing a week to complete prototyping discussions. Now, ZeeVee can get much earlier and more detailed feedback on design prototypes, fostering productive discussions on designing for manufacturability, an in depth analysis that Suntron provides, which will reduce costs to build products. A picture is indeed worth a thousand words, so getting together and showing how things are supposed to work is essential. But now it's only 28 miles up the Interstate.
"In any product development life cycle, there are opportunities to settle issues, make corrections, and continue improving the time to market. With Suntron, we can test parameters and correlations in the morning, drive to the plant and test it on different equipment and get our answers by the afternoon," says Odryna. "When you are working with partners halfway across the world, this level of collaboration is just not possible, and that makes a difference when time to market is critical."
Suntron's Saunders gives a great deal of credit to ZeeVee for taking the time to quantify what manufacturing in China actually means to their business. He applauds the overall business savvy it takes to look at total costs, saying, "We have been building electronic devices and printed circuit board assemblies for 30 years, and for the last 15 years we have been told that only niche, low-volume high price products can be manufactured in the U.S. cost effectively. We knew differently, and our success with ZeeVee proves that we can manufacture cost effectively in the U.S."
ZeeVee in turn has high regard for Suntron's investment in U.S. manufacturing, noting that it was Suntron's own investment in manufacturing that paved the way for ZeeVee to come back to the U.S.
Is U.S. manufacturing the wave of the future? According to Saunders, although labor costs in China are increasing, manufacturing there still makes sense for very high volume items and those that require a great deal of hand work. For example, cell phones and disposable electronics are likely to continue being manufactured offshore, due to the nature of the product. However, in his view, firms should take a closer look at manufacturing products in the U.S. He also believes that products requiring a combination of automated equipment and skilled labor can be manufactured very competitively in the U.S., because machines have become more automated and higher machine efficiency allows for greater throughput.
Odryna notes that as the technology evolves, it can be challenging to work with people on the other side of the world, or waiting nearly two months for cargo to arrive by boat. With development performed domestically, ZeeVee can reduce shipping costs and rush charges, more easily develop new products, and balance SKUs. The bottom line is that ZeeVee can be more competitive.
As jobs continue to be a hot-button issue in the U.S., there has been a growing number of stories reporting on a shift of manufacturing back to the U.S. due, in part, to rising costs in China, along with concern about intellectual property and patent laws, and a desire to support the U.S. economy. After several months of working with Suntron, ZeeVee said the question other companies should ask is, "Why not use a domestic manufacturer" Says Odryna. "Every manufacturer should investigate doing business stateside. ZeeVee has made it work and there is no reason other firms cannot realize the same benefits."
Ed Wheeler, Suntron's president and CEO puts it this way: "I firmly believe this success can be replicated by other businesses who take the time to evaluate the total costs of off-shore manufacturing. If your overseas manufacturing isn't working as well as you hoped it would, try working with a U.S. manufacturer like Suntron. Even if things are going well, Suntron has demonstrated that it can improve cost, quality and other logistics that will allow you to work better as a company."
Contact: Suntron Corp., 300 Griffin Brook Dr., Methuen, MA 01844 978-208-4555 Web: http://www.suntroncorp.com