Supply Chain News: Dwindling Infrastructure as Industries Move Offshore Accelerates the Demise of those Trying to Remain in US or Europe

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- March 26, 2008 -

Supply Chain News: Dwindling Infrastructure as Industries Move Offshore Accelerates the Demise of those Trying to Remain in US or Europe

For Want of an Eyelet, the Factory was Lost, says One Shoe Producer; “Heavy Automation” Didn’t Work for Otabo, Nor Custom Production after that

SCDigest Editorial Staff

SCDigest Says:

The poor supporting infrastructure went beyond just component suppliers. As the industry declines, finding technicians to service specialized shoe manufacturing equipment and parts to keep them going also becomes a huge challenge.

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With the constant news and sometimes controversy about offshore manufacturing, comparatively little attention has been paid to the declining trajectories of specific industries. Often, the move offshore starts slowly, then accelerates and gains critical mass, followed by a period of dramatic decline as not enough infrastructure remains to support the domestic manufacturers still left.

That’s a fact that Otabo LLC painfully learned, as an ambitious attempt to make a go of manufacturing in the US didn’t succeed, in large measure not based on the strategy itself but on the demise of supporting suppliers and services.

As recently reported in the Wall Street Journal, Howard Shaffer, a former manufacturing executive for Nike and other big shoe companies, decided in 1995 to start a new company to produce tennis shoes in Florida.

Even by that time, the majority of the US shoe manufacturing industry had gone offshore, but Shaffer thought he could make Otabo work by a very basic strategy: use heavy automation run by a handful of skilled workers instead of relying on lots of low cost labor overseas who produced mainly by hand.

That approach didn’t work, as the company couldn’t get the scale of business needed to compete.

So a few years later Shaffer took the next logical step – turn the factory into a niche, custom-shoe producer that would use computer-aided design to produce expensive, customized footwear, selling for as much as $450.00 per pair.

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And that venture might have made it – if there was a shoe manufacturing infrastructure left to support the effort. The lack of that infrastructure ultimately doomed the company’s US manufacturing strategy – last month, the Florida factory was shuttered, and Shaffer moved Otabo’s manufacturing to China.

Supply Base is Gone

Naturally, when final manufacturing operations move out of the US or Europe, the supporting vendor base either moves to where the business is or simply gives up.

This was in large measure the source of Otabo’s US demise, exacerbated by the fact that as a niche custom-producer its volumes were low.

For example, the company required a special type of outsole, a component in the bottom of the shoe. While it was able to source the product for awhile from one US supplier, Otabo recently got some bad news – the supplier would no longer make the product, as the demand didn’t justify the costs.

The Wall Street Journal quotes, Thomas Dieckhaus, one of the owners of the supplier, Meramec Group Inc. in Sullivan, Mo., as saying that "One of the biggest challenges for the footwear manufacturers that remain in the U.S. is sourcing components. It limits the materials they can use -- and therefore influences the type of footwear that gets manufactured."

Otabo also ran into trouble sourcing eyelets for the shoes. They wanted the company name printed on the metal components, but couldn’t find a US supplier that was willing to produce the product for them at the relatively small order volumes.

Shaffer, in the Wall Street Journal, contrasts that to what’s available in China: "There are places in China where you have city blocks made up of nothing but makers of shoe materials," he said. "You can buy 10,000 laces or 10 laces."

In 2005, a manufacturing trade magazine named Otabo "Progressive Manufacturer of the Year.” Around the same time, then Florida Governor Jeb Bush visited the factory to recognize its efforts. All for naught now.

“I really thought I could show how this industry had a future here," said Shaffer as he watched his Florida factory being dismantled. Some of it is going to China; other machines are available on Craig’s List.

What’s your take on the Otabo story? What other industries are seeing any supporting infrastructure go away, dooming the remaining manufacturers? What, if anything, should be done about it? Let us know your thoughts at the Feedback button below.