Study Hall

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Location, Location: Factors In Where Products Are Produced (Audio & Otherwise)

It's a matter than can be a lot more complicated than price alone.
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I’ve made many predictions over the years. Some have been spot-on, others not so much. For instance, during the 1990s I came to the conclusion that fiber optic technology would supplant copper as a means of transporting audio in live concerts and broadcast. The mere thought of deploying a 50-channel, 300-foot audio snake night after night gives hives to even the saltiest audio tech.

To address this certain shift in the market, I took on the distribution for Telecast Fiber in Canada and invested years in educating the market on the benefits of moving photons instead of molecules. Sales were slim to none. Here we are, 25-plus years later and only now are we finally connecting front of house control surfaces to stage-bound converters over Ethernet.

Due Diligence

Around the same time, I made my first voyage to China in an effort to find a low-cost cable manufacturer. I hooked up with a trading company and crossed the border through Hong Kong. The miracle of manufacturing was evident, both by the shear number of businesses that lined the streets and the immensity of some of the facilities and employee housing structures. The air was so thick with pollution you could barely make out the buildings along the highway.

My guide booked me into a 6-star hotel (yes, 6-star) that only cost $80 U.S. a night. The place was absolutely incredible – anywhere else in the world it probably would have cost easily $800 or more a night. Right then it occurred to me that China would follow the same path as Japan and soon change from being a backwater to a leading industrialized society.

Humans are all the same. We want a solid roof above our head, food on the table, a happy family and a healthy lifestyle. Those that have talent and work hard want to be fairly compensated.

China is no different. If you’re a production manager and being paid $10,000 a year, you won’t hesitate to move to a company that will pay $30,000. Many of us are also programmed to want a nice car, flat screen TV, and all of the social trappings that go along with Gucci purses and Tiffany diamond rings. So to adapt, China’s huge price advantage would have to eventually erode. This drove me to try to figure out how to instead produce electronic products in Canada.

Whether you’re building direct boxes or guitar pedals, there are some basic building blocks. You need metal work, circuit boards, switches and transformers, power supplies and packaging. The challenge is price. It’s unlikely to be able to produce metal as cheaply as in China.

However, there’s also a benefit because you don’t have to pay the added cost for overseas freight. Another largely hidden advantage here is time. When ordering products from China, you have to put cash up front and then wait as much as 90 days for delivery. This goes dead against Toyota’s Lean Manufacturing concepts where Just in Time (JUT) delivery can drive production costs down.

Drawing Conclusions

Today, most metal shops employ robotics that can cut and bend metal automatically and run 24-7 without a team or workers. Once systems are programmed, metal shops can produce much more efficiently than ever before. The same applies to circuit boards. Pick and place machines with surface-mount parts have taken away much of the labour costs of hand soldering resistors and capacitors.

There’s also a matter of quality control. Because of the competitive nature of Chinese manufacturing, you can be provided with a quoted price and given a sample that looks fine. However, caution is advised – the actual produced part might be just a bit smaller and the metal could be a bit thinner than the original sample.

As with many manufacturers everywhere, they’re programmed to cut every penny possible out of their production lines in order to be priced lower while remaining profitable. To address this, many foreign-based companies station their own people at a factory to ensure quality is maintained. This costs money.

So I added all of this up: a decreasing labor advantage, the added costs of freight and overseeing quality control, plus the global utilization of automation, and found that it reduced the disparity to the point that we could produce in our own country. And this is exactly what we did.

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