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Focus: Manufacturing

Feature Article from Our Manufacturing Subject Area - See All

From SCDigest's On-Target E-Magazine

- March 12, 2013 -

Supply Chain News: Another US Company Brings Manufacturing Back Home - and this Time It Is Surprisingly a Toy Maker


K'Nex Sees Opportunity for Faster Responsiveness, but there are Challenges; Finding Suppliers is Hard


SCDigest Editorial Staff

It is generally believed that at least some US manufacturing is moving back home, or staying here rather than moving offshore, as higher costs in China, market responsiveness and other factors have tipped the scales so that they are more in balance for US production.

The evidence so far has been mostly anecdotal, though in general US manufacturing has been an economic bright spot in an otherwise weak recovery since the bottom of the recession in 2009, perhaps supporting the trend with some hard data. But most of the anecdotal examples have come from US manufacturers building complex machinery or devices, companies such as NCR, Caterpillar, Whirlpool and others, not the low-value added products that were generally the first to move offshore in the 1990s or even before.

SCDigest Says:



To help keep costs down, the company also recently acquired one of the new Baxter robots from Rethink Robotics for some packaging tasks.

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The toy category is certainly one of those, with toy manufacturing coming close to almost disappearing from US soil, primarily to China, which has come to dominate toy production globally. One stat from the industry said that in 2011, 86% of the entire world's toy production was done in China. In 2012, US imports of toys, games and sporting goods, mostly from China, totaled $33.5 billion, or about three times US exports of such items, according to government statistics, and it is likely that toys were a smallish portion of that total.

That as the toy industry generally has been struggling against electronic games and other alternatives to traditional toys.

So a fresh article in the Wall Street Journal noting that toy maker K'Nex Brands - a maker of a family of mostly "connect and build" toy sets, such as K'Nex, Lincoln Logs, and Tinker Toys - has nearly completed a US re-shoring strategy.

The family-owned, $100 million manufacturer cited market responsiveness as the main driver of the change, as well as better control of quality and materials, which impact customer satisfaction and safety.
"In the long term, it's much better for us to manufacture here," Joel Glickman, chairman of K'Nex and its manufacturing affiliate, Rodon Group, told the Wall Street Journal.

The move of production back to Rodon's factory in Hatfield, PA required rethinking product design in some cases and even a bit of "outsourcing to the customer" - having kids or their parents perform some of the assembly work that was previously done as part of the manufacturing process, reducing labor content.

But while it has a goal of moving 100% of its production back to the US, the company is finding many challenges. As others trying to keep or bring back production to the US have reported, perhaps the chief issue is finding suppliers. China's global dominance in toys means there are probably thousands of suppliers for toy parts and pieces. With toy manufacturing, especially for plastic toys, having left the US in droves over the past 20 years, the toy supply base has been similarly devastated.

"In China, you can go over with just a drawing and say, 'I need a million of these,'" Michael Araten, K'nex's CEO, told the Journal. In the US, finding qualified and capable vendors is now a much harder proposition.

The company, founded in 1956, had moved most of its toy production to China by the late 1990s. But the Rodon arm still made other products for customers, such as coffee filters and plastic parts for windows, that could be produced using highly automated processes. But when the recession came in 20008, demand for those items fell dramatically, and the reshoring effort started in large part as a way to keep current factory workers busy.

It was a test for Rodon, whose slogan is "Cheaper Than China." It redesigned its products to reduce labor requirements, such as changes to plastic track components that enabled them to be snapped together rather than using a pin inserted by hand in China. Other parts became part of the user-assembly process that were previously added by Chinese workers.

An attractive shiny paint finish on some of its cars that run on the tracks is going away too, due to cost and environmental reasons, likely to be replaced with decals.

"We can't do it here, so we designed it out of the product," another K'Nex executive said.

The wooden Lincoln Logs are still made in China, but the company says it hopes to find a US source soon. The same story for small battery-powered motors used with the K'Nex products, which are still sourced from China because the company can't find a competitive US supplier.

(Manufacturing Article Continued Below)




But despite the challenges, the strategy is working. Total employment at K'Nex and Rodon has grown to about 200 people, up from 150 four years ago. The Wall Street Journal says starting wages for basic factory positions run about $12 per hour, but can be as much as double that for more skilled work. The plant is non-union.

To help keep costs down, the company also recently acquired one of the new Baxter robots from Rethink Robotics for some packaging tasks. (See Rethink Robotics Releases First New Product in Much Anticipated Announcement.)

Trade Deficit with China

Despite what seems like good news on the reshoring front with stories like this, the reality is that the US trade deficit with China in manufactured goods continued to rise. As shown in the chart below, the trade deficit with China in goods for 2012 rose to another record, reaching $315 billion, up from $295 billion in 2011.


The rise from $83.3 billion in 2000 to $315 billion last year represents a cumulative average annual growth rate of an astounding 11.7%.

What is your reaction to K'Nex's reshoring efforts? Is finding suppliers the top barrier to reshoring in many sectors?
Let us know your thoughts at the Feedback section below.

Recent Feedback

Despite the continued trade deficit with China this is still very encouraging.  Sun Microsystems also has plans to move a plant from Mexico back to the US, located in Portland, Oregon.  They found that due to the numerous quality issues with the product, it is less costly to manufacture in the US with higher skilled workers.  We need many more manufacturers to look at the total cost of doing business, not just the cost to produce the product.  We may see more of this type of activity in the future.

Tracy Duncan
Value Chain Consultant
TD Oracle
Mar, 20 2013

I am an Indian and have no bias towards any nation and its commercial capabilities or inadequacies what-so-ever. Having said that, I strongly believe that in the medium to long term, (next 5 to 8 years), these companies will heavily regret disengaging from China and the Chinese and might even reverse the move. Let us accept a fact - ONLY THE CHINESE CAN BUILD IT LIKE THE CHINESE.

Paritosh Kanade
Aug, 15 2013