MADE IN OREGON
Companies find it pays to keep manufacturing local. Take that, China.
By Michelle V. Rafter
When Les de Asis shows a visitor the carbon dioxide lasers and computer-controlled machines in the factory of his Oregon City company, Benchmade Knife Co., he’s like a proud father showing off his kids.
De Asis and his wife Roberta started making pocket knives and hunting knives 17 years ago in a 2,000-square-foot space. Today, Benchmade’s 45,000-square-foot facility is bursting, with close to 90 machinists, assemblers and other factory workers producing high-end knives that sell for as much as $2,000. In the factory, state-of-the-art robots burn knife blades out of premium-grade stainless steel and titanium. Assemblers attach finished blades to knife handles and embellish them with accessories. Master sharpeners hone blade edges just so. Finish workers package knives in color-coded boxes: red for the least expensive up to gold for the most.
Benchmade could make knives in China. In fact, some low-end products are made there, though they comprise just 3% of sales. Instead, the family decided to keep the majority of its production in Oregon — a decision they say has been the key to their success.
By keeping manufacturing local, Benchmade has more control over raw materials, production and employee training, Les de Asis says. That allows the company to roll out new products and fill orders faster. As a result, Benchmade knives are so popular with hunters, police officers and enthusiasts that sales are growing in triple digits and annual revenue has pushed past $30 million. Benchmade now has 150 employees and is hiring more. According to de Asis, keeping production local is also why Benchmade routinely wins weapons industry awards and why the company was a 2007 finalist in a family-business awards program run by Oregon State University’s College of Business.
Benchmade isn’t alone. The company is among a cadre of small and mid-size Oregon companies that have purposely chosen to keep factories here rather than send work offshore — and succeeded because of it.
There was a time when shipping production overseas seemed like the best answer for rising labor costs at home. But with oil prices driving up transportation costs, and prices for raw materials and labor rising in China, going offshore doesn’t seem like the end-all, be-all answer it once was. Businesses looking to keep their factories here — or bring them home again — can look to companies such as Benchmade for how it’s done.
In addition to maintaining tighter control over production, keeping factories in Oregon allows companies to quickly respond to changes in the marketplace and do a better job guarding proprietary information, say de Asis and other company owners. The “Made in the USA” label is a big boost at a time when U.S. consumers worry about lead-tainted products made overseas and when the weakening dollar is making American-made goods more attractive as exports.
“There were two or three companies that started about same time we did in the same industry that did the offshore thing,” says Hanz Scholz, co-founder of folding bicycle maker Bike Friday, in Eugene. “They’re not here anymore,”
To help local factories stay put, state agencies and industry-led groups are working on a number of fronts in efforts to bolster a manufacturing industry that’s been battered by steep declines in wood products and computers, the state’s long-time manufacturing strongholds.
Manufacturing still accounts for 25% of the state’s total gross domestic product, second only to Indiana in the country, says Tom Fox, a business development officer with the state Economic and Community Development Department in Salem. But the current economic downturn — whether it’s a full-blown recession or a temporary slump — is cutting jobs. By the end of February, Oregon’s factory jobs stood at 199,500, down 9,100 since an August 2007 peak. That’s a slightly smaller drop than in the same period the previous year, when factory jobs dropped by 9,600 from a high of 213,000 in August 2006, according to the Oregon Employment Department.
Though wood products, computer and electronics manufacturers are suffering, job losses have been buffered by an upswing in food, metals and machinery factory jobs, according to a March report from the Oregon Employment Department. While they won’t reverse the declines completely, growth in those and smaller sub-sectors is expected to fortify and diversity manufacturing employment over the next 10 years, according to the report.
Scott Dawson, dean of Portland State University’s School of Business, agrees small pockets of manufacturing job growth are helping the state during current hard times. “It stands to reason we’ll have somewhat of a downturn,” he says. “But I’ve lived here most of my life and I don’t think we’ve ever weathered a downturn this well.”
OUTSOURCING PRODUCTION to a cut-rate subcontractor sounds like a great way to go. But hidden costs can eat away at those profit margins, says Nancy White, owner of Custom Interface, an electronics maker in Bingen, Wash., across the Columbia River from Hood River. Those hidden costs materialize when an offshore contractor misinterprets engineering drawings so work has to be redone, or substitutes inferior materials so a customer won’t accept the finished goods, White says.
Some of White’s customers who make military equipment are barred from using foreign subcontractors, giving her preferred status as a U.S.-only supplier. Clients also choose to work with her because of the fear factor, White says. “They may be concerned about having their technology cloned, or they can’t afford to wait 12 to 14 weeks to move from conception to finished product,” she says.
Allaying those fears helped Custom Interface’s sales grow 30% in the past year and pushed employment to a record high 80 people, including 10 new hires so far in 2008, White says.
Sending work offshore runs counter to lean manufacturing techniques many Oregon companies are adopting. For small businesses following those practices, it doesn’t make sense to hook up with a Chinese contractor who insists a customer order 20,000 parts when they only need a couple hundred, says Charlie Lake, president of Warne Manufacturing, a Tualatin maker of mounting brackets used to attach telescopes and lights to hunting rifles. “I can respond in a matter of weeks when most companies take months and months,” Lake says.
After Lake bought Warne in 2001 and instituted lean manufacturing, production cycles dropped from 22 days to one, he says. By optimizing factory space, Warne stayed in the same 7,000-square-foot plant while adding 20 employees and producing five times as many scope mounts. That boosted profits to more than 15% on annual revenue that’s risen to $4 million from $850,000 seven years ago, Lake says. Now the factory’s so crowded, he’s adding 1,200 square feet.
The “Made in the USA” label has been a plus for companies such as Bike Friday, which makes travel and folding bikes. It’s important to U.S. customers, who buy most of the 1,000 bikes the company makes in a year, Scholz says. But it’s even more important to customers in Taiwan, Japan and South Korea, which account for a quarter of sales. Customers there like the cachet that comes with owning American-made goods, Scholz says. “We may be one of the few bike makers in the United States that exports to Taiwan and China,” he says.
Because of demand, the 21-year-old company has seen its workforce grow 30% in the last five years to an all-time high of 42. That’s more than twice what it was when the post-9/11 dip in air travel walloped sales.
SOME COMPANIES KEEP their factories in Oregon because they get financial incentives to stay. One is Triad Speakers, which makes high-end home entertainment systems. In 2004, Triad secured $216,000 in loans and grants from the Portland Development Commission to help finance a new production facility in Portland’s Airport Way urban renewal area, according to PDC spokeswoman Anne Mangan. In exchange, Triad committed to keep all 60 of its employees and add jobs, all in Portland. As of March, Triad’s workforce was up to 74 and wages for factory jobs have increased, says Larry Pexton, the company’s president.
“The program is quite well conceived and produced exactly the intended results: higher-paying manufacturing jobs,” says Pexton, who in mid-March was in China setting up a showroom that will sell Triad equipment.
The state also has programs to help keep factories here. Since 2002, the Oregon Economic and Community Development Department has awarded close to $2 million to more than 120 companies through Oregon Manufacturing Extension Partnership, an industry group that trains companies in lean manufacturing methods, says Fox, the OECDD business development officer. The 3-year-old Oregon Innovation Council, or Oregon Inc., is in the process of awarding $28.2 million in grants approved by the 2007 state Legislature to manufacturers and consortia working in emerging industries.
Industry groups are doing their part. Lake, with Warne Manufacturing, is head of the Oregon Manufacturing Workforce Strategy, a four-year initiative backed by $500,000 in state grants to help manufacturers train workers. The organization started a website called Oregon Manufacturing to share data on resources and funding for training workers and developing business plans. Private businesses have also teamed up with government agencies and community colleges on a project called Worksource Oregon to help train high school and community college students in the kind of modern manufacturing skills employers need.
At Benchmade, de Asis is active in Oregon Manufacturing Workforce Strategy, Worksource Oregon and other workforce training initiatives, all aimed at finding more employees. The company needs the extra hands to deal with a growing backlog of orders. De Asis recently added a 20,000-square-foot mezzanine level in his building to move storage off the factory floor and make way for more manufacturing equipment. Another 30,000-square-foot addition is in the works.
Now de Asis is starting a second company to capitalize on expertise he’s developed in rapid prototyping and other 21st century manufacturing processes. “If we’re going to be world class,” he says, “we can sell that to other companies.”
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