Heading for a Narly Wipeout

It's ski season again, unless you're in the Alps.  Sporting goods stores everywhere are greedily greeting customers with racks full of Rossi's, Atomic's, Salomon's, Volkl's, and ScottyBob's.

ScottyBob's?  Just as with many sports such as surfing, there are dozens of small entrepreneurs making small volumes of skis.  Many of them earn small, but reputable followings from retailers, pro athletes, and weekend warriors.  They offer distinctive designs claiming to improve performance in specific conditions.  Some are purely made-to-order and some make low volumes of specific models.  A few of those repetitive manufacturers are dreaming of the big time and are aiming for the high volume market.

And a couple of those, such as ScottyBob and Mountain Boy Sledworks apparently don't have a clue about manufacturing, and have made a decision that will probably kill their companies.

ScottyBob manufactures three models of alpine skis and three models of telemark skis, with a total of a just a few hundred pair produced out of their Silverton, Colorado factory.  They retail between $500 and $750, so they are a bit more expensive but not exhorbitantly so.  Mountain Boy is also in Silverton, and has seen 10x growth for each of its two year history, and its custom steerable sleds are now featured in the L.L. Bean catalog. 

Why are they on the path to destruction?  Because both companies are setting up new manufacturing operations in China as they look at increasing product volume.

ScottyBob's entire annual volume of few hundred pairs of skis would take up about 15% of a typical shipping container.  Even if they consolidated their shipment with their cross-town cohort they might use up one container load.  Perhaps they anticipate that volume might double or even triple... so make that a couple of container loads.  The fastest ships take 11 days of actual shipping time to go from Shanghai to Long Beach, but add on a month or more at each end for transit to port, consolidation with 1,000 other containers, and distribution on the receiving end.

The companies are concerned about labor cost.  The manufacturing process for skis is not overly complex and is not labor-intensive, however the customized nature of their products creates a two-week cycle time. 

Being a lemming and focusing on chasing the cheapest labor will simply result in globetrotting from country to country.    China is already seeing a high level of factory wage inflation.  But there are also major supply chain risks... the types of risks that are real but somehow never show up on a balance sheet.  What happens if there's a production delay?   You miss a very tight seasonal window.  What happens if a quality problem is found after the long transit time?  You miss a very tight seasonal window.  Obviously to avoid that you better increase inventories... I wonder what that does for cash flow.  What happens if the whims of the market change after all that inventory has been produced? 

If ScottyBob and Mountain Boy were going after the burgeoning Outer Mongolian ski market, then manufacturing in China might make a modicum of sense.  But trying to shave a few pennies off the labor cost of a high margin low volume knowledge-intensive product does not.  With even a small focus on removing internal waste, while analyzing their true profit and cost structure, they could achieve far greater savings while reducing the cash tied up in inventory and also reducing the sleepless nights worrying about sinking ships.

But it's probably too late.  A search on their products already yields many results with "country of origin: China" in the product description.  I wonder how that impacts sales.

Comments

[Julie McCormick]

Kevin - good story and so sad. Unfortunately all too common as well. I almost wonder if some small guys go to China because it makes them feel like they've "arrived" and are in the big leagues. That's a sad time when outsourcing becomes considered something to aspire to.

[Mark Graban]

If you're interested in the risks of going to China and the competitive state of lean (or lack of lean) in China, check out my recent podcasts (2 of them) with Jim Womack:

www.leanpodcast.org

[Mike L]

Great post. I'm going to use it as part of my next training class, which deals with chapter 8 of "The Toyota Way" ("create continuous flow to bring problems to the surface"). Trans-oceanic outsourcing is the total opposite of lean process flow, and you do a great job of explaining why it's so harmful to a value stream.

A quick note about flow: All of the side-effects of flow are great (low inventory levels, smaller facilities, speedy detection of defects, etc.), but the best thing is the focus that everyone has on solving problems when there's no room for error. Everybody becomes a critical problem-solver and an asset. That's the way to best respect people.

[Andrew]

I am the owner of a couple of pairs of skis and whilst I live in London, still get to put 30+ days / season on skis.

I have a pair of Movements (designed in CH made in Tunisia and a small manufacturer) and a pair of Line Prophets (made out of the same factory as K2 and Karahu).

Salomon, K2, Line, Atomic and a number of other manufacturers all produce ski's for a variety of other manufacturers.

When I rode bikes seriously, it was incredibly common for companies such as Giant to produce bikes for other manufacturers including Specialised, Trek and I think Gary Fisher amongst others.

Bike manufacturing used to be the sole remit of Italians, and no one else could produce bikes of comparable quality. I think if you ask anyone thats a serious cyclist these days, in spite of the Chinese having no racing pedigree they make excellent products and in some instances of a quality that far surpasses the traditional european and american marks.