I wrote about the amazing bionic wrench in March, 2011, and how its inventor, Dan Brown, used a unique process he calls “Differentiation by Design” to design it and get it into the market place. From the very beginning, Dan knew he had to commercialize it for the retail mass-market, but he was committed to an ‘American made’ business model. This presented a significant challenge: How do you compete in a market space dominated by low-cost imported products with an American made product?
Brown, a product developer with over 30 patents, knows the value of design, so he resisted sending his new invention off shore, because he wanted to have it manufactured in the U.S. His objective was to create a business model that would allow him make his product in America, and sell into a market space dominated by low-cost imported tools.
Value Added Price Strategy
Brown knew he needed to find a good vendor in the U.S. to manufacture the Bionic Wrench because he believed that due to the cost differences of labor and production between the mature and emerging markets, and that if new value added products could be produced in the mature markets that invest in their development, there must be a robust lean strategy from supply chain through the distribution channels to compliment a strong product experience.
Brown’s decision was based on the assumption that if a new product truly has created added value, it should be able to receive a reasonable value added price in the market and produce the product domestically until competition or product evolution eats away at that added value. As the products mature, lose their added value, and become more commoditized; the domestic supply chain model will cease to be competitive. At that point, you have hopefully reinvested in the next generation value added product to sustain your domestic supply model, extending your brand with the consumer.
Design for Manufacturing
As part of the process to make the Bionic Wrench in the U.S., Brown designed and prototyped it in a number of different manufacturing processes, such as water jet, laser, forging, and stamping. During these processes, he designed and redesigned the wrench to “Lean” out the process, defining the best material options, reducing the number of parts, standardizing components, eliminating steps in the manufacturing and re-designing issues with tolerances etc. Brown considers these “design for manufacture" steps, as part of the concurrent design process before production begins – not a process down the line separate from the product design and development process.
All of this work was done before he chose a final vendor, and he even modeled the assembly line and fixtures so he could time study the assembly and continue to Lean out the design for manufacturability. "I first modeled the individual assembly steps in 3D CAD. Once the process was defined, I prototyped the fixtures and work flow to optimize and validate the production.”
Brown feels strongly that “when you integrate the design for manufacturing closely with the product design, you can identify design ideas that help you simplify your manufacturing.” This is the only way to have a chance to compete with lower-cost imported products.
Based on these experiments and costing out the design for the best combination of unit cost versus manufacturing investment, he determined that the “plate manufacturing” method using stamping provided the best combination of piece part cost, quality, and performance. He then focused on searching for the best American supplier that could build the tooling and stamp, and assemble the wrenches.
Dan was looking for an American Manufacturer that could be a strategic partner:
- With the production expertise and best practices developed to provide high-quality components at competitive prices.
- That could build the tooling, stamp the parts, assemble the wrenches, and fulfill the orders all under one roof. He wanted to deal with one strategic supplier not multiple supply chain management issues.
- Who had already implemented the Quality and Lean thinking systems in their culture, so he did not have to nurture them in these areas.
- That was relatively close so that he could easily get there for meetings.
Strategic Partnership and Agreement
Brown didn’t just want a manufacturing vendor. He wanted a U.S. based strategic partner that he could work with on the project. He did not want the problems of managing multiple vendors or complex supply chains. He says, “When you do not have a system of ultimate accountability and a problem arises, from my experience, too much time is lost with one supplier blaming the other supplier for the problem,” he says. “Sort of like two kids fighting in the back seat of a car, and not focusing on resolving the problem.”
This is a quick way to destroy your relationships.
Brown knew that his core competency was in design, product development, commercialization, and creating the IP to protect the investments. He also knew that he had a limited amount of investment capital, and it made no sense for him to utilize his capital to invest in manufacturing capacity that already existed in the supply chain. He saw that the best use of his capital would be to secure the patents and develop the marketing and product launch strategies to compete in a very competitive market space.
After reviewing several other manufacturing options, he chose Penn United of Cabot, PA as his strategic partner, and developed a supply agreement where Penn United would not only design and build the tooling, but also have some skin in the game and acknowledge the financial terms dictated by the mass-market buyers. The agreement required the financial resources to hold inventory and participate in the retail trade receivables conditions of the big box retailers.
Their first production run was for inventory, which was limited so they could work the kinks out of the production line. Their first big order was for approximately 300,000 units of the three combined sizes, which really got the new product launched into the market. Like all other American manufacturers, sales were slow during the recession, but 2011 was their highest unit production since they started. Dan sees 2012 as an even bigger year for sales of the Bionic Wrench, because it is now being advertised on TV.
This story explains a business model of a strategic partnership based on designing new "value added" products that can be leveraged by other American manufacturers to develop and manufacture new products in the U.S. He makes several compelling reasons for manufacturing in the U.S.:
- Brown invented a value added and patented product that was very unique. The patents serve to protect him from knock offs.
- Brown felt that a unique product should command a value added market price, which would helped him source domestically.
- Because Brwon understood the need to spend the time in the designing for manufacture process to optimize the production and insure high quality from the start, he wanted somebody that was geographically close to him. This would save him a lot of time in getting the product to market and travel costs.
- Finding another American manufacturer that could complement Brown’s expertise, he united with a company that could handle all of the manufacturing under one roof. Partnering with Penn United leveraged the domestic supply chain advantages, their resources and investment, as well as the ability to participate in the credit terms demanded by the big retailers
- To insure that the partnership could meet the deadlines for market entry they needed to have absolute control of delivery time and quality. As everybody knows the risks of delivery and quality are much higher with a new Asian supplier, and big problems during the first order could have killed the product.
Brown has been a product development consultant for twenty years, and has a lot of experience designing new products that have been produced in China as well as the U.S.
“My personal belief is that free and fair trade is good and should be the basis of a strong global economy,” says Brown. “But I believe that we have to have balanced trade based on a reciprocal market access model, where choosing your manufacturing is based on strategic issues that do not arbitrage the environment, labor, or workers health and safety.”
“Similarly, businesses should compete in free markets with other businesses, not government subsidized producers, either U.S. subsidized or foreign subsidized. For capitalism to work, we need to allow a free and fair market to choose the winners and losers, not the politicians or government officials.”
The irony is that the issues of subsidies, tariffs, stealing technologies, and currency manipulation have gotten worse in China. Brown believes that America’s rush to offshore products for the last 30 years in Asia, whether it made economic sense or not, has caught up with us. He thinks that more and more American consumers will see the value in American made products, the economic sustainability will become more of an issue for consumers, and that this in itself would be a strong product differentiator for us.
Mike Collins is the author of Saving American Manufacturing. His website is www.mpcmgt.com.