The Pitfalls of Manufacturing in China
Liz Picarazzi at the factory in Suzhou, China, in 2017.
The choice in front of me was: “Should I stay with my fabricator in Connecticut who isn’t meeting my evolving needs and costs a lot more? Or should I move forward with the contract manufacturer in China who is eager for my business and costs a lot less?”
By Liz Reisch Picarazzi
When I made the difficult decision in 2017 to move manufacturing to China, I didn’t anticipate a pandemic that would shut down the global supply chain. Or the tariffs that have wavered unpredictably between 3 percent and 25 percent. Thanks to the increases in freight and tariffs, it now costs 52 percent more to manufacture in China than it did in 2019, and that doesn’t account for the time my team spends chasing containers instead of growing the business. That also doesn’t account for the business we’re likely losing from our openly communicated four month lead time scaring customers away. It’s become really expensive to manufacture in China.
We used to be able to sell and install our trash enclosures and package lockers within two weeks. Now, lead times are, on average, 14 to 16 weeks, with some customers waiting up to six months for products they’ve paid (thousands) for in full. It’s embarrassing to be in what feels like a constant state of “installation-date revision” with our clients; it distorts the customer experience I’ve worked so hard to create.
Pre-pandemic, for each container we brought over, there would be a dozen or so standard status-update emails from Flexport, our freight forwarder. For a recent container that arrived in Elizabeth, New Jersey from Shanghai, there were 100 emails about changes and delays. I stopped reading them.
The long-awaited container, which sailed for four weeks, spent another four weeks stuck in the port, the victim of a crippling U.S. Customs backlog. Ships are in line for miles, customs-clearing takes forever, and just when you think you’re moving, you have to wait for a truck (in short supply), which is waiting for a driver (in high demand). My poor container probably feels like Elaine in the famous Seinfeld episode when the subway kept starting and stopping, and the voice in her head became progressively more desperate and filled with expletives. We have four more containers sailing before the end of the year and expect them to have similarly long journeys.
Whoever pays the most gets the containers. Before the pandemic, we paid $10,000 per 45-foot container, with short reservation lead times. Last week, I paid $23,000 for that same container and felt like I got a deal. We are a very small business compared to big brands and retailers who will pay whatever it costs to get their goods here for Christmas. Retailers like Target and Home Depot are even buying their own ships and containers.
Given the supply chain logjam, I’ve decided to once again explore the possibility of domestic manufacturing. I reached out to ten, received bids from 4, and have begun a road show to meet the contenders. When Loren learned of my endeavor, he asked that I consider writing a series about my experience trying to reshore manufacturing to the U.S. I was (and still am) hesitant to share because my experience in China has been positive — an unpopular opinion — but one that readers may find interesting.
As background, I’d like to explain how I made the decision in 2017 to move production to China. I had manufactured in New York, Pennsylvania, and Connecticut before going overseas. As an inventor with no background in industrial design or metal fabrication, the U.S. factories I worked with helped transform my trash enclosure from low-volume custom bins to high-volume prefabricated kits that can be shipped anywhere.
The U.S. fabricator I last worked with was a third-generation business that featured a father-and-son duo as the dual faces of the operation. As often happens with family businesses, the younger generation wanted to be innovative and expand the business in new directions, while the older generation wanted to stay the course (in their case, huge structural steel parts for skyscrapers). I worked very closely with the son on a redesign and a few small production runs, but I soon got the sense that his father saw my business as an extracurricular activity that distracted from his core business. Pricing became erratic, emails weren’t answered, and when I quadrupled the size of my order, I was given only an 8 percent discount.
One day at an Entrepreneurs Organization event, I shared with the group my frustration with this vendor, who by this time wasn’t meeting expectations for price, time, or quality. I had just received an SBA loan and had the funds to order in much larger quantities but felt I wasn’t being taken seriously—much the way Sara Blakely had to go factory to factory to get someone excited about making her innovative pantyhose. As we all know now, she’s a billionaire who shouldn’t have been underestimated.
One of the attendees at the event followed up to say that he heard what I said and could introduce me to his brother, who is a contract manufacturer in China. Within two weeks I had received several quotes from factories in China that were 50 percent less than those in Connecticut. Intrigued, I booked a flight from JFK to Shanghai.
It was a whirlwind week touring factories, meeting the account team that would oversee production, and making sure quality control procedures were tight. Everything was taken care of—drivers, translation, negotiations, meals, hotels—making it a very efficient trip with little effort aside from the oppressive 15-hour flights.
Back then, the choice in front of me was: “Should I stay with my fabricator in Connecticut who isn’t meeting my evolving needs and costs a lot more? Or should I move forward with the contract manufacturer in China who is eager for my business and costs a lot less?” I chose the latter, and in four years, I have come to see my Chinese supplier as an extension of my team. They do everything from sourcing obscure hardware to overseeing quality control with the factory to rapid prototyping of new product ideas. The time difference means that questions we post to Basecamp before bed are answered by the time we wake up.
I’m not looking for a U.S. fabricator because my Chinese partner is messing up. I’m looking because of the increased time and cost of manufacturing in China. There is congestion in every part of the supply chain, from sourcing bamboo boards to the truck that takes our containers from the port to the warehouse. I’d rather have my sales managers calling on prospects than calling customers to explain another delay. I’d rather have my operations manager tackling a bookkeeping challenge than tracking container movement. I’d rather that dinner table conversations be about my daughter’s school day than about the Suez Canal.
I sent requests for proposals for production of one of our products to 10 metal fabricators in the U.S. In the coming weeks I’ll be touring shops, comparing quotes, and figuring out which way to go: China, the United States, or both. I’ll share as I go, and I welcome questions and ideas from 21 Hats readers.
Liz Reisch Picarazzi, CEO of Citibin, writes regularly about her entrepreneurial journey.