Several years ago, MRPC made a strategic business decision to allow a large portion of business from a long-time customer to go to an offshore molder. The customer began looking for ways to reduce manufacturing costs of their product, and was lured by the low costs associated with an Asian supplier. When they retooled and moved to the job to China, MRPC thought the work was gone for good.
“We just couldn’t give them the cost reduction they were looking for at the time,” explained Shane Mesenberg, upper Midwest territory manager for MRPC. However, over the past few years, MRPC has made some management and strategic changes to its operations. Mesenberg was brought on board, and this particular customer was in his territory. In talking about potential business in his region, this customer came up and Mesenberg decided to call on them and see how things were going with the Chinese supplier.
“The customer’s goal was to reduce costs on this product by a certain percentage every year, but they’d hit a wall for a number of reasons,” Mesenberg said. “We decided to take a look at this product and see if we could find a way to bring the business back home.”
Unit cost vs. total cost of manufacturing
Mesenberg said that many companies, when they look at the costs of doing business with offshore suppliers, only see the unit cost of the product. “We looked at it and dug into it, beyond the unit cost of the product to the total cost of manufacturing including shipping, logistics and inventory,” he said. “Often companies allocate these costs into different segments of their business so they don’t see the total costs of the product.”
What Mesenberg and MRPC discovered was that this former customer’s costs had actually increased, not just in transportation and shipping costs associated with the finished product, but because of extremely long lead times due to the distance, which forced MRPC’s old client to keep three months of inventory at all times. The logistics alone were extremely costly and complex. The parts were shipped from China to Seattle by cargo ship; from Seattle to Chicago by rail; then by truck from Chicago to the customer’s location in upper Wisconsin.
Then MRPC showed this OEM how much overall could be saved by bringing the work back to MRPC’s Wisconsin manufacturing facility. The molding work involved MRPC’s disciplines of injecting both thermoplastics and LSR, so the company’s expertise was key. Also, MRPC offer to do the assembly and the packaging, hold minimal inventory and ship just-in-time with the product fully prepared to be delivered to the OEM’s customers.
Something else that helped MRPC reshore this business was the offer of vendor managed inventory. “Now, every day we get a report from them via computer on their inventory level and, we were able to reduce their inventory levels from three months to two days,” says Mesenberg. “We ship just-in-time so they don’t have to hold inventory. In fact, they don’t have to do anything.”
Easing an OEM customer’s pain is one of the best things a good supplier can do, and finding, then solving, those painful points in their manufacturing has become a strategy for MRPC in getting new business from both current and new customers. Reducing the number of steps in the supply chain simplifies the process and eases supplier management issues for the OEM.
Vendor management as a business strategy
Vendor management of inventory has become a business strategy for MRPC. “We figured now that we’ve implemented this successfully with this one customer, why not do it with others,” stated Mesenberg. “Now we’re into manufacturing, assembly, packaging and providing a finished product using our vendor managed inventory system. We’re starting to do this for a number of customers, shipping when they need product. We are finding that this is a good value-add even for local customers.”
The net end result, adds Mesenberg, is the reduced costs for the end customer. “Plus it allows us the flexibility to level-load our manufacturing schedule based on available resources,” he said. “We’re finding good reception among our customers for this idea.”
Mesenberg noted that the system works best with those customers that have accurate inventory systems, consistently selling product, and where shipping logistics are not complex. It also finds the most value among customers that can place large blanket orders and make releases from the finished goods inventory, which MRPC holds. Customers that place small orders sporadically don’t realize the savings.
What about inventory costs for MRPC? “Obviously we don’t want to hold a massive amount of inventory either,” said Mesenberg, “so we’ve set a goal of three months inventory per part on the program. That puts our inventory turns at three to four times a year. Additionally a lot of the products we make are small so they don’t take up a lot of room. These higher volume, smaller parts work well when we’re holding inventory.”
The vendor managed inventory helps MRPC be more efficient and productive. “Under the old system, we had one customer place their order, then we’d order materials, and it could take up to eight weeks to get it in-house,” Mesenberg said. “Once we went to vendor-managed inventory, lead times dropped to just shipping time. We’ve since started doing this with another U.S. customer, serving their China and Mexico facilities in the same way.”
Another customer has a total of 10 products, and six of those were good candidates for the vendor-managed inventory system. “The other four products are low volume or sporadic orders,” he said.
The program MRPC uses for its vendor-managed inventory program is an internal system from Made to Manage. “It’s all EDI systems-based, which is beneficial because various customers are on different systems,” Mesenberg explained. “It works best when the customer has EDI capability so they can provide us with their inventory counts. Electronically we are sent their inventory levels and they can set up their systems so that when their inventory hits a certain level, our system is notified and it will automatically go to order-entry system and prepare product for shipment.”
Finding ways to reduce the overall costs for customers to make manufacturing in the U.S. the most cost-effective and convenient place to manufacture has been very successful for MRPC. The company is using the model it developed to regain one customer for future efforts to retain current business and bring back other customers to the U.S.
MRPC serves the medical; industrial; water, food and beverage; electronics, and transportation markets with a variety of capabilities including silicone (LSR and HCR both molded and extruded), thermoplastics, rubber and metal to plastic conversion.