For decades, just like his competitors, Moji Korhani manufactured his products overseas. Then in 2001, the co-owner of Montreal-based rug company Korhani Homes – a third generation family business that dates back to 1902 – decided to push against the tide and open a factory on domestic soil.
“We knew that, as with everything, offshoring was a new trend, and that the movement would bounce back eventually.”
Now that facility has grown to 250,000 square feet and manufactures 40 per cent of Korhani’s products.
The benefits to having a domestic manufacturing, for him, are many. He can make products with on-trend designs and colours with a short lead time (he needs to forecast up to six months in advance with his overseas partners), offer just-in-time delivery to Canadian retailers, and do rush orders (he did two of these recently for retail clients). Meanwhile, he avoids dealing with rising duties, the volatile Canadian dollar and the rising wages in China, all of which have been trimming profits margins on his merchandise made overseas.
Mr. Korhani’s 150-employee business has ended up serving as the avant garde for Canadian companies coming back home to make their products.
“Companies are staying in Canada, and you’re starting to see more re-shoring,” says Phil Turi, director of global business services for the trade association Canadian Manufacturers & Exporters.
Some businesses are moving some or all of their production back to Canada. Others who have always made products here have stopped the endless “should we stay or go” debate and are embracing domestic manufacturing, particularly in their marketing materials.
And all Canadian businesses who are staying put have one thing in common: they have changed how they manufacture at home because of offshoring’s influence. They’re learning from their offshore partners, seeing their domestic lines as part of a global supply chain and pushing efficiencies like never before.
Bolstering the domestic trend
The return to Canada for manufacturers is a recent trend. According to the KPMG report “Canadian Manufacturing Outlook 2014,” just 14 per cent of manufacturers in Canada plan to source from China, compared to 31 per cent a year before. India also saw a drop from 12 per cent down to 3 per cent.
It’s a movement that’s not likely going to reverse soon, particularly with the Canadian dollar’s plunge. According to Mr. Korhani, duties affecting his industry have been on the rise of late.
Meanwhile, the newly in-force Canada-Korea Free Trade Agreement and the in-progress trade agreement with the EU will bolster manufacturing here. Mr. Turi says new, foreign-controlled plants here will translate into opportunities for local companies looking to feed into the supply chain.
(The recent plummet in oil prices, meanwhile, has helped importers a little, but few shipping companies are passing significant savings on to their clients.)
A new approach
Companies that remain or return to Canada to make products are finding their work forever changed by the existence of offshore options. Primarily, low wages overseas mean domestic factories must be efficient to a fault.
That has meant the wider adoption of LEAN manufacturing principles and smart investment in automation. Mr. Korhani recently purchased a weaving machine that can product 25 per cent more volume in the same amount of time as his old machine. The cost was in the millions, and he was able to recoup some of that by selling the old machine to a factory in China. He financed the purchase over just eight years: he expects the machine to both pay for itself quickly, and he needs to free up capital to move on to the next investment.
Over at Dayton Boots, a Vancouver-based company that’s been making work boots since 1946, manufacturing on home soil is part of the brand’s identity. But with competitive products selling at half the price (his boots retail for $400 and up), CEO Stephen Encarnacao runs his small operation – he has just 15 employees, eight of whom do manufacturing – with a constant eye to efficiency.
That means just-in-time manufacturing, so he’s rarely sitting on old inventory. More importantly, Dayton’s dozen or so designs revolve around a few, trusted patterns that his staff can produce quickly. “We do made-to-order boots and some with bells and whistles, but we try to focus on our core styles,” says Mr. Encarnacao.
“I’d describe our approach as incrementalism,” he says of the company’s plan to trim costs and stay competitive. “If I use a smart material here, I can save 10 per cent, if I manage our work flow better I can save 5 per cent, all to see if I reduce our costs by 20 to 25 per cent.”
This same kind of streamlining has helped Canadian-Made Apparel in Cambridge, Ont., get its start. The manufacturer launched in spring 2013 by buying the equipment and leasing the factory space left behind by the John Forsyth Shirt Company – in fact, the new company was launched by Forsyths’s director of manufacturing Rick Droppo and his wife, production manager Kelly Droppo.
To start out, the new company did what they knew best: shirts. “We are very good at shirts, we are one of the best shirt factories in North America because of the investments we’ve made. But with that automation comes inflexibility.”
To ensure the company’s longevity, he’s now seeking a balance between the efficiency of mass production and the possible profitability in being diverse. “We’re not a shirt factory anymore, we’re a factory of skilled workers.”
So Mr. Droppo has found new clients with different product needs and he’s now producing outerwear and flame-retardant safety wear for them. Most recently, the company got far outside its comfort zone and started making fabric suitcase components for a new client.
Moving to assembly only
One of the biggest trends in local manufacturing is to go even more efficient by tapping into the global supply chain and assembling the final product on Canadian soil. “The assembly model of manufacturing is huge across Canada,” says Mr. Turi.
At Dayton, this approach offers a possible way to expand. This year, Mr. Encarnacao plans to start opening retail stores across the country and offering apparel items, along with boots.
To do this, he plans to source boot components from a large U.S. factory that can make leather and rubber pieces at a lower price point, and his Vancouver staff can sew the boots together and radically lower the cost of production overall.
These ideas, some borrowed from offshore innovators, but most adopted out of necessity to keep Canadian manufacturers competitive, can only do so much. Despite the trend to moving home again, those that make products here face slim bottom lines.
The ability to claim “Made in Canada” and the knowledge that local factories create jobs is often what keeps these business owners motivated when the bottom line isn’t so inspiring. Believing in local potential and wanting to keep jobs for staff is what keeps owners like Mr. Droppo looking for the next smart idea. “We sure don’t do this for the money.”Report Typo/Error
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