More Companies Could and Should Manufacture in the U.S.

By Susan Schlapkohl, VP of InterVac Design 

My husband Peter and I founded InterVac Design over eighteen years ago.  It’s been quite a journey from commercial banker to manufacturer.  While I had a lot of experience financing manufacturing companies, I had never been an entrepreneur.  My husband has never been anything but an entrepreneur, so our skill sets, while opposite, were complimentary for starting a new company.

InterVac was started in 1997 to manufacture our invention of a compact central vacuum system that could install flush inside a cabinet or wall, or could simply be surface mounted on the wall.  Everyone we encountered told us we would have to make this in China.  Our response was simple.  No way!  We stuck by our decision because the most important part for us was to control the quality of our product.  We knew going in that as a small company there would not be an advertising budget and we would have to be certain that we did not risk our reputation by selling a product where we didn’t control the process.  We also believed that by automating everything we could from the start, that we would be able to reduce our labor cost so significantly that it would be impossible to make it cheaper in China.  For potential competitors this would make it much harder for them to compete on price.

But getting the plant set up was hard work.  Starting with just an idea and moving that from the drawing board to finished product required a lot of elbow grease.  Most big companies have the resources to write a check for whatever is needed, but small companies, while financially at a disadvantage, have the advantage of being able to make decisions quickly and are forced to be more creative. We became expert Ebay shoppers.  It’s amazing how much money a small company can save because they only need small quantities.  Cylinders we use in our production line that sell for over $100.00 from the vendor are easily sourced for a fraction of that amount through auction sites.  We purchased storage racks from Costco for less than half the amount the Industrial supply houses wanted.  If you are willing to do the research you can save many thousands of dollars in equipment to set up a plant.

As the wage gap with China continues to shrink and certain US states provide cheap places to manufacture, more companies are discovering that the 50% savings they anticipated in reality is only about 10% once they factor in all the variables.  This past January we say out shipping cost increase 200% due to the dockworkers strike in Los Angeles.  And we were only importing accessory parts.  If we had to import the vacuum cleaner we would have gone out of business.  Shipping cycles went from four weeks to eight and there was no other way to get goods here on time.

It’s an obvious calculation to see how much money a machine can save you over labor cost, but that’s not the only factor a business should take into consideration when contemplating where to manufacture.  Inventory turnover, supply chain disruption and quality control are paramount.  We have seen many times that a Chinese supplier furnishes a great sample but when the final product ships it can be unusable.  It’s no fun to see your dumpster filled with sub-standard goods you had to pay for in advance.

Factoring in your inventory turn rate and levels is also an important calculation that many companies ignore.  When you source from China, as a small business, you are required to pay up front for the goods.  This can dramatically reduce your cash flow.  It also forces you to guess right about which product is going to sell, and which might be a slow turner.  Guess wrong and you have even more money tied up in inventory, more space required to house it, and more labor to manage it.  It’s a lose-lose scenario.

Over the years we have reduced our RM cost, and continuously automated.  That has created opportunities in new markets for us because of the lower cost, and while other companies have struggled, we have grown at 30% a year.  With labor cost, shipping cost and lead times increasing from China, it’s easier than ever to see why Made in U.S.A. is better, not just for creating jobs in America, but for your company’s bottom line too. 

Susan Schlapkohl, who has a background in finance and investment, is founder with her husband, Peter, of InterVac Design (www.intervacdesign.com), which manufactures built-in vacuum cleaner systems for boats, RVs and small homes. Schlapkohl previously had 30 years of banking experience, and also was president of JJFN Services Inc., which purchased model homes from builders and leased them back to the builder.

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