The costs and benefits of low cost suppliers
This article examines the experiences of a leading UK manufacturer of fall protection components, following their investigations into potentially sourcing from Asian suppliers and also as a result of seeing more Asian suppliers becoming direct competitors. It is not to justify or even support protectionism, as it seems inevitable that Asian suppliers will flood this (and pretty much every other) market and after all, any qualified marketer will tell us it is product lifecycle that dictates that as volume demand increases then supply inevitably drives prices down and opens the market up for low cost manufacturers.
This article is simply to try to justify and promote the real cost of development of a ‘quality-consistent’ product and the benefits it brings across the board, whilst understanding that a mass move towards cheap imports can stifle very necessary product development by reducing profit and therefore re-investment.
There are two well established component manufacturers/ engineered solution providers in the industrial safety market – ISC and DMM. Both are pioneers in the development of metal and mechanical products for the fall protection market and both are rightly proud of their ability to take market feedback and use it to innovate and bring quality new products to market. They do not use the EN Standards as their only benchmark – just achieving the performance requirements and little more. On the contrary, their products go above and beyond the parochial and look towards compliance with relevant international Standards (ANSI/CSA/AS/NZS/NFPA). But even more importantly than that, their designs and specifications are minutely configured to give maximum factors of safety in whatever application so that the user can be guaranteed that he is using an inherently safe product.
Design and development
Product Lifecycle dictates that somebody somewhere has to come to market with a product that has a low demand and a relatively high price. Low demand because its desirability has not been recognised by the market as a whole, and high price because of a) the cost of design/development and b) the cost of manufacturing in small batches. If that product then becomes desirable and demand increases, manufacturing methods change and the price will reduce due to the benefit of economies of scale. The initial investment can be spread over a larger volume, thus reducing the price still further. At the same time as more and more distributors want a slice of the action, the market becomes more competitive. Many distributors who perhaps don’t have any great technical expertise will sell with reduced margins just to take market share away from their competitors and so price pressure increases.
It’s usually at this point that the innovative manufacturer finds his product being copied, generally for the benefit of increasing distributors’/retailers’ margins. Enter then the entrepreneurial Asian who will claim to ‘rip-off and duplicate’ for at least half the price and this is undoubtedly an attractive proposition. The phrase ‘rip off and duplicate’ may seem a harsh phrase bit it is used without fear of Libel as that is generally an exact description. The Chinese in particular are recognised as being very specific in their detailed representation of things – its perhaps something to do with the exactness of the written language, where a line in the wrong place could turn your friends wife into your brother’s lover. Not unexpectedly therefore can their representation come back to the originator exact in every detail – even down to a design/manufacturing flaw!
The net result of all this is bound to be that many of those innovators will reduce their investment in R+D to the detriment of the industry as a whole. The initial costs for product development and then market development are generally very high – especially in Europe and America. New products do not just magically appear out of a tool room. It often takes weeks and months of market research, design time, machining and assembly, testing, verification and field trial just to make and prove a successful prototype. Then there are the costs of protecting the Intellectual Property (covered later).
And all that’s well before the first production batch.
Many financially orientated ‘Corporates’ (which is the majority of companies – ISC and DMM aside, there are very few purists out there) would be unwilling to look at the long term ie a payback period of >3 years. So, couple that with a high chance that a successful product would probably be copied within 2 years, the costs of R+D becomes quite unattractive.
As mentioned above, it is normally those companies that have either little technical expertise or who have a customer base that is compliance-minded rather than truly safety-conscious, that start this ‘R&D’ ball rolling and by default they are very unlikely to re-invest their profits into further innovation.
Quality and consistency are very often unreliable. A controversial claim perhaps, but market feedback supports it.
It is incredibly difficult to verify offshore suppliers’ QA systems (if indeed they have one) and integrity, without the necessary expense of regular site based audits and in-house checks/ sanitisation. A recent supplier audit by a well-known manufacturer revealed that the 100% proof loading supposedly being carried out (and being charged for) was obviously not, as the machine in question was still covered in the shrink-wrap from when it was delivered several months before. Quality system procedures, up to date drawings, material specifications, test certification and pre-despatch reports are all required at least by the discerning distributor, if not by a Notified Body for CE approvals. Every vendor should be aware that a product claiming to have been tested to CE compliance will not necessarily have or gain CE approval – always ask to see the CE certificate issued by a recognised Notified Body if in any doubt. Better still any vendor that wishes to sell Asian product should not only invest in their own approval, but in test equipment too, thereby proving the reliability of the product they sell by sanitisation.
ISC and DMM do exactly that. The burden of proof is with the vendor. Any reliable, trustworthy and high-profile manufacturer will support this 100% because they know that problems can easily arise from using inferior designs, materials, workmanship or quality assessment. That’s why when you visit their factory’s, they would be able to show you intermediate inspection checks throughout the whole process from in-coming raw material to finished goods despatch. They offer as standard 100% proof loading to 16kN and a 100% visual check and function test. They offer as standard batch destruction testing with a statistically relevant sample on each and every batch and historical records would highlight ‘the norm’.
There is nothing to hide – European manufacturers have this as one of the main weapons in their armoury. Even in some cases, where the European manufacturer has relented to price pressure and embraced the low-cost import (either in component or finished goods form), the sanitisation process is still fundamental to the process, as it is that process that allows the confidence to sell a product which is consistently ‘fit for purpose’.
Product liability insurance is expensive and almost entirely non-productive. Premiums for a minimum £2m worldwide cover are exorbitant, after all industrial fall protection is a risky business. But with the claim culture that is apparent in Europe and America it is not worth being without it. Before entering into any sort of supply agreement ensure that you have seen a copy of the suppliers insurance certificate – and put it in front of a lawyer. Chinese or Indian law may feature completely different terms and conditions than you would expect under UK or European law.
Under normal circumstances a reputable manufacturer would have little to worry about as it has been found that most accidents attributable to products have been caused by mis-use rather than by poor product quality. But how much of that is down to the fact that until very recently most product supplied in the Western marketplace has been made by reputable manufacturers?
If a serious incident ever occurred through the failure of a product, surely it would be comforting to know that your ‘local’ manufacturer is only a car or plane journey away and that within a couple of hours you could be sat in front of a team of specialists who would support you in every way possible?
If Trading Standards were to ever question the compliance of a product, surely it would be comforting to know that your ‘local’ manufacturer is available on the end of a phone to solve your paperwork requirements?
How easily available is this sort of support from an Asian supplier?
The moral argument
There are various moral arguments to consider also.
- It’s interesting that demand for Asian produced harnesses has not taken off even though prices are extremely cheap. Perhaps there is a line in the users’/buyers’ psychology that cannot be stepped over, however there is little difference between the rivet on a karabiner and the stitch pattern on a harness.
- What buyer would switch supplier over a few pence/cents reduction in their karabiner or pulley which could potentially save a life, and yet wouldn’t think twice about paying over the odds by several Pounds/Euros for a MacDonalds burger, Starbucks coffee or Magners Cider?
Then there is the global picture so topical in recent years.
- Diminishing local manufacturing and expertise
- Working conditions of those involved in low-cost manufacturing. The safety industry may not have the profile of fashion industry, but the working conditions can still be appalling compared to those in western manufacturing
- Heavy use of reducing supplies of raw materials and carbon fuels and the environmental/climate change problem
- The UK in particular has a proud heritage of innovations in metal, yet many across Europe and North America feel as if their engineering expertise is being badly eroded
Proper R+D is based fundamentally on the knowledge and expertise of those who have been both manufacturing products and/or are in close contact with customers in a market.
They are the true entrepreneurs within an industry and it is they that bring to market safer, more effective, more efficient products that improve the work environment. Most Asian suppliers do none of these and therefore as more reliance is focused on the benefits of low-cost it is slowly eroding the capability of experienced innovators/developers, even before the commercial considerations of starting a project take place. The enthusiastic support for low-cost product is narrow-minded and short-termist. In the long run it could have a huge and detrimental effect not only on those involved in developing product, but also those people in the workplace who want to remain efficient, effective and safe.
Published: 10th Sep 2007 in Health and Safety International