U.S.-based manufacturers are increasingly finding themselves reacting to shifts in the global supply chain that are increasing prices and delivery lead times. Rather than rolling over and crying uncle, vertically integrated companies are playing on their strengths, which include faster times to market for new, updated, or custom-built products.
Such companies have better control over their inventories and can therefore minimize exposure to risks that plague companies that need to make overseas bulk purchases of pre-assembled products. This enhanced manufacturing flexibility allows a vertically integrated company to be much more responsive to critical needs and requirements of the customer, and often translates into a higher level of service and support.
In addition, a resurgence of consumer patriotism positions U.S. manufacturing companies to leverage opportunities and capture market share for substantial bottom-line gains.
Shift in world markets increasing prices and lead times
China, and to a lesser extent India, has dominated world markets during the past few years. These self-sustaining economies now have the luxury of being both the biggest buyers and suppliers in the global supply chain. They are consuming vast amounts of raw materials, and are putting a strain on the rest of the supply chain. The upshot is a dramatic shift from the age of a buyer’s market to that of a seller’s market.
As a result, the rest of the world is experiencing increased pressures in the form of higher pricing and drastically increased lead times. What used to take a few weeks to receive may now take as much as six months to a year.
Vertically integrated companies are best able to mitigate these pressures. Those least reliant on others to conduct their business can be more adept at navigating around supply chain obstacles. Vertically integrated companies are more flexible and able to react to market fluctuations much faster than those heavily exposed or anchored to outsourcing.
Made in the USA – brand loyalty sweetens the pot
China (and to a lesser extent India) are being viewed in a similar way to how we viewed Japan in the 1980s. As the world economy evolves, and new economic powerhouses emerge, we are also witnessing an upsurge in pride for American-made goods.
In the United States, the slow recovery following the recent downturn in the economy has fueled a resurgence of consumer patriotism among U.S. distributors, contractors and consumers alike. The sentiment is aided by U.S. government-backed stimulus programs that promote buying American-made products.
Manufacturers that can brand themselves and their products as being truly Made in the USA, and can deliver the products, are best able to take advantage of these market opportunities.
ICM Controls leverages Made in the U.S. benefits
ICM Controls, a leading manufacturer of electronic controls for the HVACR industry, is an example of a vertically integrated U.S. manufacturer that is poised to meet head on and successfully overcome the new challenges in the global supply chain.
The North Syracuse, N.Y.-based company houses three core manufacturing processes under one roof. From fabricating its own printed circuit boards, to populating these boards using dozens of high-speed surface-mount machines, to the molding of its own product casings and accessories, ICM Controls realizes the value of doing everything in-house, and prefers to operate this way.
By continuing to reinvest in its vertical integration strategy and world class manufacturing capabilities, ICM Controls can offer customers faster times to market from concept to delivery for new products and for product updates and/or custom refinements. The company can react to ever-changing market trends faster, better positioning itself to capture market share and maximize gain.
While it must still navigate the murky waters of buying some components overseas, ICM Controls does not “order” pre-assembled product overseas. Therefore, ICM Controls can better control its inventory levels and more easily and quickly liquidate any product it may need to. This becomes especially important for OEMs and for aftermarket products with revisions, for which ICM Controls can perform running changes. This leads to improved quality and higher levels of service and support.
The company’s Made in the USA product pledge is attractive to all segments of the market, including distributors, contractors and homeowners.
For example, Waltham, Mass.-based distributor Johnstone Supply’s Rena Langley estimates that about half of the equipment she handles is made in the U.S., and wishes that proportion were higher. “I hope that we can have more domestic products coming in, because I know we have had quality issues with some of the foreign products we handle.” She adds, “I’ve got contractors saying that even though there may be savings up front in some of the foreign-made equipment, they have to change out parts more frequently, making it more costly in the long run.” She concluded by stating that she has observed much higher quality in American-made products and said if the prices could be brought closer to foreign prices, the industry would benefit more.
From a contractor’s point of view, energy efficiency is the number one driver in the HVACR business and efficiency innovations are absolutely key. “We know that innovation in industry still begins in the US. This is where patents are held and ideas are formulated,” said David Kagan, manager of Texas Central Air, a leading residential and commercial HVAC company in Houston, Texas.
Kagan notes that innovative and durable controls are a critical part of his business, where every product is relying on bringing clean electrical power to it. Electrical brown outs experienced in his service area have a tendency to affect equipment and reduce its life expectancy. Controls to reduce brownouts are one of the more critical components he adds to systems he installs to help the units last longer.
“As a contractor, we are selling durable goods with an assumed life expectancy. When we sell and then service a product, we are taking on customers whose business we want to earn down the road. We are always asking ourselves what we as contractors can do to help this equipment reach its life expectancy.”
And one key answer is to purchase American-made products. According to Kagan, “I’m well aware of how many manufacturing jobs have gone overseas and feel we owe our allegiance to the country in which we live. However, I also believe we produce a better product here.”
He explained that he has some experience with Chinese products brought in by the largest distributor of a major HVAC equipment manufacturer. They purchased and installed a large number of these motors and found the brand was noisy and prone to frequent breakdown. “Once bitten, twice shy,” he says.
Kagan agrees that there is a price threshold, noting that he is running a business and must remain profitable. However, he affirms that price is not the sole determinant in what product he uses, stating that doing a quality job using quality products is likely to benefit the company in the long run. His company takes the initiative to educate customers on quality versus price issues, recognizing that the tough business environment may leave them out of certain jobs. “We don’t sell a Cadillac to someone in the market for a Chevrolet, but we want to promote a product we think will last longest. Since our goal is to earn business not just today or tomorrow but for years to come, we speak out to explain that American-made products in the HVACR industry are far higher quality.”
One reason he sees even more of an incentive to use higher quality, higher priced American-made products is a recent trend in the industry to offer greatly extended equipment warrantees. “We have to ask ourselves, what product do we want to put out there that’s going to meet this warranty?” He notes that the trend has them seeking not the cheapest, but the longest wearing components so they will not be out fixing and replacing equipment constantly. The challenge has been to find as many American-made products as they can, with the next best alternative products assembled in Mexico.
Contractor, Anthony Ragusa of Montz, La.-based Authentic Air, LLC agrees, saying, “I feel HVAC parts that are made in America are more reliable, and are also easier to work with, from the point of view of diagnosing issues and then getting parts for repairs. There is just that connotation of quality, reliability and good workmanship. I will always use made in America products first when I can.”
According to Ragusa, many people in his service area are looking for the best price due to the economy and are not clamoring for American-made products. However, they frequently will go along with his recommendations, and Ragusa usually recommends a product made in America. “With an overseas product, it would have to be much, much cheaper for the same thing. I’d also have to see some reviews or testing on it first before recommending it.”
The final link in the HVAC chain is the homeowner, whose main concern is usually how well the heat or air conditioning is working in the home. For Robert Hall of Pensacola, FL, health issues make even mild humidity levels really uncomfortable, so the results he realized after installing a CC750 Comfort Control Center from ICM Controls onto his air conditioning system carried even more significance. “I was very pleased to learn that it was made in America. I would always go for an American-made product where possible because of its quality.”
Final thoughts
In response to global shifts in the supply chain, U.S.-based manufacturers that opt to reinvest in themselves versus outsourcing will be in a better position to minimize the impact of the paradigmatic shift in the global supply chain, and also leverage U.S. consumer patriotism that has resurfaced for the first time since the 1980s.
