There is a lot of talk nowadays about manufacturing in the USA and “reshoring“. Part of me applauds these efforts and part of me, remembering my own difficult time with domestic manufacturing, thinks that not only is it not possible, but not something anyone in her right mind would wish to do.
Then I wondered if my experience with domestic manufacturing in the cut-and-sew space was typical. To fin out, I’m sharing my experience with manufacturing in the USA, which we did from 2009 through 2011, and why I’m not overly eager to try it again.
When I first hatched the idea for Po Campo in 2008, I was very keen on the idea of producing our product domestically, if not locally. This was before there were resources like Maker’s Row around to help you figure out how to do it, and it was much more difficult than I had ever imagined it would be.
Unlike overseas manufacturing, where the factory does all the sourcing of raw materials for you, in the U.S. you typically have to do all the sourcing yourself. So, there are two parts of the manufacturing process: the sourcing of the raw materials and then finding a factory to construct your product.
Sourcing Raw Materials
Once we had good samples of our first products, we were able to make a thorough Bill of Materials (BOM) and start the hunt for suppliers. Our bags had about 25 different components each, so there was a lot of hunting to do. We turned to Google and Thomas Register to start contacting companies.
Our first lesson was that the MOQs (Minimum Order Quantities) for raw materials was much higher than we needed. Dying/printing custom fabric was upwards of 5,000 yards when we needed 100 yards. Buying bulk webbing (straps) in custom colors had an MOQ of 1,000 yards when we needed 400 yards. Trying to get hardware at an affordable price required a purchase of at least 1,000 pieces when we needed about 200 pieces.
We tried to tweak our designs to require fewer materials, but we were still nowhere close to hitting the minimums. Therefore, we had to purchase most materials “off the shelf” and pay 50% to 100% more for them, forcing us to both raise our price and reduce our profit. In some cases, we ended up purchasing materials directly from Asia, either because we could not find a vendor in the U.S. or because it turned out to be less expensive, even with exorbitant shipping costs.
While we were eventually able to source all of the different materials, they all came from different suppliers with different terms and different minimums, resulting in a very complex supply chain. Also, the raw material vendors could be difficult to work with. They were often rude to me on the phone, treating me like a small-scale nuisance and/or a stupidly naive girl rather than a true customer. They were also technologically unsophisticated: ordering by phone or fax was much more common than ordering by email or online, which made ordering a lot of material hard to do when you had a full-time job elsewhere. In short, buying materials was a pain in the butt.
Producing the Product
Now, onto the labor side of the equation. The greatest benefit of working with a local factory was their proximity. Sample making was a collaborative process, where they would make a bag according to our drawings and then we would visit and discuss improvements together. Our factory was about a 20 minute drive from my office (I still had my day job), making it close enough to swing by over lunch if I had to.
A common complaint about overseas factories is that they are always late but we experienced the same thing with our local factory, which makes me think it is just inherent in the cut-and-sew world. You may think that you can go down to the factory and stomp your foot enough times to make them finish your order, but that just wasn’t the case. If they had an order from a more valuable customer (read: larger) to finish first, they would.
Another problem we experienced was running out of materials. Despite building the BOM together with the factory, we would inevitably get a call midway through production that they had run out of something and could not continue. We would rush to track down more of it, often paying a small order surcharge or purchasing way more than we needed to to keep production on track. I don’t think the factory purposefully wasted materials, but since their profit was in how quickly they could sew things, it was in their best interests to cut corners on efficient material usage in exchange for construction expediency, and we paid for it.
Pricing Problems
Because of the higher costs of both the raw materials and the labor, our margins were so-so, around 34% (industry standard is 44%) or less, sometimes much less, depending on how much the raw materials cost that go-around. That meant we would have to sell more bags to make enough profit to grow the business as we wanted.
Yet, it was hard to sell bags. We got a lot of encouragement and oohs-and-ahhs, but we were told over and over that our prices were just too high. Our efforts to streamline the design to simplify production resulted in a simpler bag that we were still charging too much for.
The high price of the bags affected other aspects of the business too. We learned that since our product was so new and different that we needed to invest more in marketing. We originally planned on giving influential bloggers and journalists a bag for them to review, but our bags cost us too much to do this at a large enough scale to make an impact.
I started feeling that the only thing I liked about manufacturing in the US was being able to say “Made in USA”. But if the process made me miserable and we weren’t able to sell enough to stay in business, why were we doing it?
Deciding to Make a Change
After another disappointing sales season in Spring 2011, I decided to test the notion that our sales were slow because our bags were too expensive. I dropped the price as low as we could to see what would happen. Our online sales went up over 400% the first month and stores started reordering for the first time.
The experiment confirmed that our price was a big hurdle to purchase, and reducing our cost by 35% or more was not going to be feasible with the way we were doing things. Even if we went to a different city in the U.S. with cheaper labor prices, our raw materials costs, which made up about half of the total cost, would stay the same. Expecting to save 35% on labor alone, regardless of where it was made, was unrealistic, or unconscionable, as workers would likely be working in sweat shop conditions, which are sadly not unheard of in the USA.
Since moving our production to Asia, we have had our fair share of problems. Shipments have been late, sometimes devastatingly so, and we have had quality issues here and there. However, it is much easier to produce the bags that I want to make (and that our customers ask for) because not only is there a wider array of materials available, but I also have access to the latest in cut-and-sew technology. Our profits are much healthier, and, as a self-funded business, this makes all the difference in the world. Some of the things I’m most proud of with Po Campo, like hiring a good team and our partnership with World Bicycle Relief, would not be possible without those profits.
Would I ever consider producing bags in the USA again? You bet. I think about it all the time. But I don’t want to go back to the way things were in the early years of Po Campo, where it felt like we were slowly marching towards an inevitable death.
Is Cut-and-Sew in the USA Realistic?
Learning from other brands that successfully produce in the USA, if Po Campo were to “reshore”, we would need to change our distribution strategy (i.e. only sell B2C) and own more of our supply chain. We’d likely need to raise our prices and sell to different customers too. Essentially, we would need to develop a new business all together. Oh, and I would definitely need to procure enough capital to give me a multi-year runway, and access to capital has not been easy for me.
Now that I’ve shared my sordid tale with you about my experience of making in the USA, I’d love to hear about your experiences. Did you encounter similar road blocks that I did? If so, how did you overcome them?