The Downward Spiral of Manufacturing

This article says that a small shoe manufacturer failed because the exit of shoe manufacturers left the industry with too few suppliers for the plant to survive.

Supposedly, the most efficient businesses are supposed to survive, but that works only if there is adequate infrastructure.
Aeppel, Timothy. 2008. “U.S. Shoe Factory Finds Supplies Are Achilles’ Heel.” Wall Street Journal (2 March). http://online.wsj.com/article/SB120450124543206313.html

Howard Shaffer’s factory for making high-end custom shoes, relied on computer imaging to fit customers from around the U.S. and Canada remotely, turning out shoes for $450 or more a pop.

“Having spent the previous decade setting up plants in China to manufacture shoes for big U.S. brands, he thought he knew how to revive the moribund U.S. footwear industry: use heavy automation run by a handful of skilled workers instead of relying on large numbers of low-paid Chinese laborers.”

A trade magazine catering to the factory-automation industry pronounced him “Progressive Manufacturer of the Year” in 2005, picking tiny Otabo for an award that usually goes to a large multinational.

“But now, he is throwing in the towel on that venture, too. He closed his factory over the weekend, and is shifting the bulk of his operations to China.”

“What killed his U.S. factory isn’t just competition from Asia’s cheap labor, he says. It is the lack of infrastructure needed to make a factory tick, a problem that has bedeviled the few remaining independent shoemakers in the U.S. Finding technicians to fly in on short notice to fix shoe machines was a constant and growing challenge, Mr. Shaffer says, because the number of U.S. companies that make and service machines has dwindled. The suppliers of shoelaces, leather, and other basic materials insisted that he buy in batches far larger than made sense for a small-scale producer.”

“Consider what happened with his supplier of outsoles, which form the bottom part of the shoe. Mr. Shaffer initially found a domestic supplier to provide what he needed at a reasonable price. But a glitch developed about a year ago. One Otabo style required an outsole with two types of polyurethane sandwiched together — a tough bottom layer that resists wear and a spongy inner layer that makes the shoes more comfortable. It is a more complex process, Mr. Shaffer says, “and so after three years of supplying us, they said they just can’t do it that way anymore”.”

“David Murphy, chief executive of closely held Red Wing Shoe Co. in Red Wing, Minn., an iconic American boot maker that has kept a large manufacturing operation in the U.S., says even a larger-scale company like his, with annual sales of more than $400 million, has to worry about the shoe industry’s withering infrastructure.”

“Almost 99% of the 2.4 billion shoes purchased in the U.S. every year are imported, 86% of them from China. The problem of obtaining components is especially acute when it comes to materials uniquely designed for shoes, as opposed to generic items such as cardboard boxes that are used by a wide array of manufacturers. This is one reason why Red Wing prepares its own shoe leather, says Mr. Murphy. Mr. Murphy notes he just got a call from a small custom shoe producer in northern Minnesota who often turns to Red Wing for supplies. “They were having trouble getting shoe laces,” he says.”

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