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Transcript of Sher-Wood
Bill Burrows : Mike Steckler : Rohan Joseph
1) What motivated Sher-Wood to outsource manufacturing inside or outside of Canada in 2007? And what was different in 2011?
Sales of one million wooden and 350000 composite sticks in 2006.
Predicted high growth in its composite stick business in terms of volume and profitability.
By outsourcing wooden and high end models, core focus of the company is narrowed to improvements in the quality of composite sticks with new and tougher compounds.
Decline in sales volumes of sticks by 50% in 2010.
Regain demand by offering a competitive retail price over its rivals.
- Higher margins to retailers to market their products
Plan to reduce costs and optimization of resources by shifting operations to Quebec.
Considered backshoring the manufacturing to China due to its cost reduction and R&D advantages as well as Quebec's strict equipment regulations
2) Should Sher-wood outsource its remaining manufacturing? What are the pros and cons of each?
No, outsourcing may incur both real and intangible costs that are not part of the traditional labor, transportation and duties equation which could affect the company's bottom line.
Transportation and customs: Air freight costs from China are can run abut $350/lb. Ocean shipping from China is several weeks spent in transit.
Political risks: Radical changes in policy like nationalization of factories, or changes in labor rules, can whipsaw manufacturing companies.
Currency risks: Sudden change in currency pegging brings uncertainty and unpredictability. The CNY is artificially undervalued between 15% and 40%
Control and IP Risk
Lower labor rates: Save about 80-85% of direct labor costs moving to China compared to 30% of total costs in the US.
Swiftness and expertise: Vendors with specialization fields allows tasks be completed faster and with better quality output.
Concentration on core process: Strengthen their core business process by outsourcing supporting processes.
Reduced Operational and Recruitment costs
High labor rates: Cost of labor makes up the largest portion of production costs.
Heavy regulations: High taxes rates and laws especially corporate taxes, environmental and labor rules forces companies offshore.
Lack of required skilled labor: Education system is not meeting future demand.
High operational and recruitment costs: Hiring individuals and in-house operations costs more compared to Asian countries due to limited number of required skilled labor.
Ease of doing business: Cultural and language affinity, geographic proximity and time zone advantages
Stronger team collaboration & integration: Minimizes communication problems and improves product development process.
Lower shipping & travel costs: Shipping and travel within the home country is less expensive compared to China and reduce lead times.
Higher quality: Skills and availability of resources like real estate are plentiful.
3) How does the recent trend toward reshoring figure into your recommendations?
Off-shoring of production to China is mainly done to save money.
Re-shoring is being considered due to rising labor rates offshore and new challenges.
Re-shoring is done to improve its public image that the company is more interested in the benefit of the country.
While on its face it may look good to re-shore labor however it may not be done if they can't justify the additional expenses.
4) What creative alternatives for Sherwood EXCLUDING reshoring?
1. Still accept small batches and specialty orders with short turn around terms.
- Utilizing competitors products to fill these orders and re-brand the product being purchased.
2. Utilize manufacturing facilities in neighboring countries that are more expensive than China but closer so the net cost is similar and provides for quicker response times.
- Aside from proximity Mexico provide free trade agreements, and protection of intellectual property.
3. Lean manufacturing is a collection of techniques to improve manufacturing productivity
- Overcome the apparent short-term cost advantage of overseas manufacturers.
5) What was the best extra mile source for your group in this case?
Candas game, but made in China
Examines Sher-Wood and their competitors choice to outsource
Sher-Wood follows rivals to China, closes Quebec hockey stick plant
Downfalls of closing the Quebec plant
Hockey gear is focus of tariff cut in Canada
Import tariff reduction on sports goods
6) What are the public policy implications of this case? (Science and Technology Policy).
Negative perception and loss of jobs
Difficult to collaborate with Asian manufacturer
Change in testing process
Compliance with laws and regulations
Review materials sources and specifications