A Lot Of Hard Work
Another challenge is supply chain management. For instance, at Radial we used thousands upon thousands of switches, potentiometers and transformers. Instead of purchasing these through distributors, we established direct relationships with factories around the globe.
An example — a switch that would cost $2 U.S. locally could be purchased at high volume for 20 cents. If there are six switches on a product, this reduces the cost from $12 to $1.20 – a huge factor when considering that this could decrease the retail price by as much a $50 and/or enable a company to increase its profitability by a significant margin without compromising quality. It takes a lot of hard work to establish these supply lines, but in my experience, the rewards are well worth the effort.
Sometimes finding a quality supplier can feel like an exercise in futility. When we decided to shift acoustic panel production from foam to glass-wool, we decided to move production to China because there was no way we could undertake hand-wrapping panels with fabric at an affordable price.
By chance we located an acoustic panel producer and began with prototypes. However, the quality was terrible – the panels not only smelled bad but they couldn’t pass any of the necessary safety flame tests.
The producer finally gave up and was good enough to pass along some contacts. It took several visits to the selected factory and months to work out the kinks, but we finally got there. The quality was great and deliveries were on time.
Backup Plan
Yet another challenge was locating a second source. This is important. The best way to keep costs under control is to have the ability to move production from one facility to another.
However, this isn’t without a caveat. If you don’t give the supplier enough business, your orders will be moved to the bottom of the pile. While you’re growing a business, it’s smart to open up relationships with other vendors.
To this end, I travelled to China to visit another glass-wool factory. My journey began with a flight to Shanghai, then at 6 am, a 4-hour trip on a high-speed train to a city in the middle of nowhere. I was then picked up by a driver and spent another two hours in a car and ended up in a dilapidated building in the middle of a rice field. They served a lunch that scared me half to death, then showed me around what can best be described as a “middle aged” smelter.
I asked the owners why they were located so far from civilization. They replied that because they caused so much air pollution, the government forced them to move from Shanghai to the countryside. (So we pollute here instead!) Needless to say, we didn’t use them as a supplier.
I recall once when heading across the border into the U.S., the customs agent asked what I did for a living. I told him we produced electronic products in Canada. He replied: “No you don’t… no one builds electronics in Canada.”