Re-shoring: The next Goldrush

Filip Vercauteren

Tiscotex

“The story of a small manufacturing company in turbulent

economical times”

The future of manufacturing

“A promising future as consumption of goods is set to double next 15 years, but labor intensive manufacturing will remain abroad.”

McKinsey, Nov 2012

5 different segments

• Global innovation for local markets – Machinery & Motor vehicles

• Regional processing – Food & Beverage

• Energy-/ resource-intensive commodities – Wood products and basic metals

• Global technologies/ innovators – Computers & Medical supplies

• Labor-intensive tradables – Textiles & Toys

Labor-intensive tradables

• Production is globally traded

• Migrates to countries where labor costs are lowest

• Our advanced economies have a trade deficit in these goods

• Employment has fallen to 65% of level of 1995

• It is here where we believe our opportunity lies.

A Golden opportunity

• Organisation is key, not the way products are made – Fusion between trading and own production – Lean manufacturing in a lean organisation – Pushing the limit as to which products can be made

locally

Change

structure

Productivity

gains

Rebuilding own

production

A Golden opportunity

A more complex and volatile environment promises a perfect battleground for lean small companies that can

quickly change gears.

Re-shoring: The next Goldrush

Case study: Tiscotex

4 activities

• Weaving

• Carpet bindings

4 activities

• Automotive industry

• Cargo securing and lifting

Tiscotex in 2007

• 45 People of which 8 white collars

• A Turnover of 3.000.000 € (67.000 €/ person)

• Old machines: latest big investment was in the beginning of the nineties

• No unique products and no R&D

• Clients leaving rapidly to competitors selling “made in China” products which were on average 30% of the Tiscotex price

2007 – Ambition

Deliver the best range of highly qualitative products at the best price

Entrepreneurship – Trial and Error

What have we done at the organisational level?

Question everything and fine-tune all details

1. Think global

- Even small companies can and should operate globally • Purchasing in e.g. China is done through a Chinese person working

on a quality commission

• Payments are done through professional trader software giving us an edge in exchange rates

• Production is done in Tunisia and Asia

• Sales are everywhere in Europe through our network of independent sales people.

Being able to shift quickly between these production and sales options is a key driver of being competitive

2. Sales people

– Simply too expensive, as the cost of 80.000 €/ sales person/ year cannot be earned back.

– Focus on big exhibitions: director should be performing as sales and feel the market

– Clients do not expect sales people anymore; still too many companies have the typical sales guy.

– Sales are easier when client finds you

Since that decision sales are up 66%...

3. Outsource accounting

– Full time accountant replaced by a professional company for 20% of the price

• Savings on computer and office equipment, working space, sick leave, holidays etc.

• Accounting company gives advise month to month as opposed to once a quarter/year.

This improved margins by a fenomenal 15%

4. Focus on Marketing

4. Focus on Marketing

- Very small companies can efficiently create a brand • With outsourcing to professional companies and efficient

use of internet

• Our products are “Made in Belgium”

• Service is best advertisement

25k vs. 80k for 1 sales person

5. Focus on quality

- Quality is the only argument left for asking a price premium

• Price advantages can erode fast.

• When you deliver the best quality, you always have a seat at the table (DAF)

30% of our time is spent on quality

6. Invoices

- Director should do this to see where every € goes to • Invoices are checked and approved on the same day

• If discounts exists, paid instantly

• All invoices are paid in 30 days

Timesavings, less errors and instant feedback on spending

7. Meetings

– The flow of information can be continuous in the very small company

– No need for time consuming meetings (300 €)

– New ideas vs. complaining

– Replaced by Friday lunch session in relaxed atmosphere.

8. Lean Manufacturing

– Re-evaluate operations on a daily basis (Stitching)

– The search for simplicity in processes is continuous

– Automation vs. Cost

– Vertical integration leads to flexibility

– Lay-out for both high volume trading as customized production

– Prepare for increasing amount of SKU

8. Lean manufacturing

– System of economical unemployment in Belgium is unique

– Efficient production processes vs. full capacity utilization

– Energy costs: taking heating into consideration when planning production

– Giving employees more responsabilities (eg planning, wages, quality control, improvements).

End Result:

– Turnover is now 5.000.000€ = +66%

– From an operational loss of -200k +400k/year

– Ebitda = 8% of turnover which is fully (!) reinvested in the company

– 29 employees of which 3 people now handle all white collar (vs. 8 before): a productivity gain of a whopping 345%

– Turnover/ employee = 172.000 € = +157%

End result

– Cost of quality claims less than 0,1%

– Customer loyalty in top 50 = 100%

– Employee loyalty = 100%

– Purchase of first company in Denmark, exporting our organizational model.

Vision of the future

– The hunt for the big distributors is open!

– Internet will lead the way, not so many producers sell directly

– Doing the right thing = preparing organization for a world of mass customization