Case Study Axiom: Manufacturing with Entrada Makes a Reel Difference
Weighing China against Mexico as a manufacturing location based on labor costs alone is a false comparison. Mexico’s proximity to the US and Canada, highly competitive cost structure, and transparency make it a winning location, hands down, according to Axiom, the New York-based manufacturer of fishing rods, owned by St. Croix Rods, and Rapsody, Inc.
ST. CROIX FISHING RODS are sold and distributed in every major fishing market across North America, Europe and Asia. While they are designed, engineered and marketed in the US, the entry-level product line used to be produced by a contract manufacturer based in China. Driven by quality concerns and a lack of transparency from the Chinese supplier, St. Croix eventually decided to change tactics and assume control of manufacturing by forming Axiom North America, LLC, and setting up its own operation.
The question was “where”…
Axiom weighed the benefits of China, Vietnam, Thailand and Mexico as potential destinations.
You need to see the big picture
“In 2008, we decided on Mexico as a manufacturing location primarily because the proximity enabled us to get product to our distribution centers and customers quickly,” explains Bob Penicka, President Axiom Industries. “By manufacturing in Mexico, we’d also be able to adjust to seasonal swings in demand and efficiently manage the introduction of new products and technologies into the factory.”
The company would also no longer need to ship en masse from Asia to the U.S.full containers holding as many as 15,000 fishing rods each.
“Those rods typically spent 30 to 40 days on the water and then had to get through ports. They then endured a three- or four-day truck ride before eventually reaching our factory in Wisconsin. And all of this was before they could even be inspected and deemed acceptable!” Penicka describes. “We looked at all the timing involved with shipping from Asia and realized it was just too cumbersome.”
While labor costs in Mexico can be slightly higher than in some of the Pacific Rim locations, Penicka says that when the timing of getting product and the expense of travel to manage the business are factored in, Mexico just ends up making a lot more sense.
You don’t have to go it alone
“We are not large enough to move to Mexico on our own, so we wanted to work through a shelter company. The other thing I focused on was stability in the workforce. In the past I’d experienced that border town operations typically have high turnover. People come to the border either to work, make money and then go back to the center of the country, or they’re at the border hoping they can get across to the U.S. at some point,” says Penicka. Either way, it leads to a transient labor force.
“We learned during our research that turnover was much less of a risk if we were in Central Mexico. The workforce is stable there. It’s where these workers grew up, where their families live and they don’t move on. They want the same stability we want,” he explains. “In retrospect, that’s been vital to our success, because a lot of our jobs require months of training before somebody can really perform them efficiently. Retention of key employees is crucial to us, and I think in the end we made the right decision.”
Axiom investigated six shelter companies, and once it homed in on Central Mexico the list narrowed down to two pretty quickly. The decision to go with Entrada Group was based on a few factors.
“First, it is a U.S.-based company, so we could relate to their business values and practices, which was quite important. Second is operating costs. The package they offered was very competitive. Third is the stability of the workforce. And the fourth and biggest deciding factor is that we really like and respect Paul Karon and Doug Donahue, the two principals in the business,” outlines Penicka.
“We had a good feeling that these were the kind of people that we’d be happy with in a long-term relationship. Now we’re almost five years in
and indeed they’ve proven to be everything we thought they were.”
Your operation remains in your control
Another important factor about the Entrada model is that it allows manufacturers like Axiom to maintain control. That control is paramount.
“Control in the factory leads to three significant results. The first is quality. We always want to ensure that we are making fishing rods of a world-class, benchmark quality. By getting shipments out of the factory every week and seeing real-time what’s coming out, we’ve gone from doing a full 100% inspection in Wisconsin to doing a statistical sampling now,” he explains. “At present we see product every week but don’t need to be in Mexico to do it.”
Control over costs is another result. Today Axiom can see expenses as they occur in real time. “In fact, we’ve gotten good at predicting them!” Penicka says. “When we talk about control, we are really talking about stability in the financial aspects of the operation. When we build a certain mix of product, we know in advance what our cost inputs are going to be and what our scrap is going to be. We can control the things that are critical to us financially.”
The last result is that the company can control the schedule and mix of what is being built. “We get seasonal demand trends, and thanks to proximity, we can adjust pretty quickly to that demand. That is not possible if you’re ordering from overseas and you’ve got 120-day lead times tied to your order,” explains Penicka.
“We have a much nimbler, higher performing operation – not only for our own top quality rods, but as well as for other recreational goods companies for whom we manufacturer equipment on their behalf.”
A final word of advice
“For any company considering Mexico, I’d say a great portion of your success hinges on the quality of the shelter company principals with whom you will be working. They must be people you respect. Examine them closely. Make sure they’re not only good at what they do, but that they’re also making an effort to understand your needs and priorities,” advises Penicka. “There will be periods when you spend a lot of time and energy working with them to, for example, resolve an issue or go after a new opportunity. They should be committed to your success.”
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