Staying local | Cutting costs and staying lean helps Saunders Manufacturing handle foreign competition
Stop me if you've heard this one: Cheap imports from Asia — where workers earn pennies, companies don't provide employee benefits like health insurance and often receive subsidies from their governments — flood the U.S. market, driving hard-working domestic manufacturers out of business.
It's a classic story, repeated thousands of times over the past decade in Maine and across the country. But it's one story John Rosmarin doesn't want told in Readfield, where the company he owns, Saunders Manufacturing, has been making aluminum form holders and clipboards since 1947. Most would assume a manufacturer of such mundane items would have been driven out of business by cheap imports long ago. But Rosmarin, Saunders' president and CEO since 1992, and owner since 2005, says it's been the company's ability to adapt, innovate and reduce costs that are responsible for keeping it afloat in the face of cheap imports.
Companies like Saunders offer a different perspective on U.S. manufacturing, according to Hank Cox, spokesman for the National Association of Manufacturers, an industry group in Washington, D.C. "Everybody has this perception we've lost our manufacturing base," Cox says. "The fact remains the U.S. is still by far the largest manufacturing nation."
Sure, cheap imports have driven thousands of companies out of business and three million manufacturing jobs were lost in the United States between 2000 and 2003, but the thousands of manufacturers still around have emerged as more efficient and competitive companies, Cox says. "I guess that's the real story about Saunders," Rosmarin says. "This manufacturing facility wouldn't be here if it weren't for our ability to reduce costs."
Saunders' survival, however, has required tough decisions on Rosmarin's part, from protecting the company's market share by lowering prices to keeping costs down by laying off employees. "We've found ways to remain competitive," Rosmarin, 59, says on a recent afternoon in Saunders' manufacturing facility.
Staying competitive has involved innovation and creative marketing to keep Saunders products in front of consumers. That's sometimes easier said than done: "How do you innovate with a clipboard?" Rosmarin asks.
One way is to make it more attractive to consumers that shell out more money for products they view to be environmentally friendly. Saunders, which has always used virgin aluminum for its products, jumped on the green bandwagon in November when it began manufacturing some of its products with aluminum recycled from beer and soda cans. The company plans to manufacture all its products from recycled aluminum by the middle of this year, Rosmarin says. (For more on Saunders' move to recycled aluminum, see "Metal health" below.)
Ninety percent of the company's roughly $25 million in revenue still comes from its line of office products, but it has also diversified. In 2000, Saunders acquired RhinoSkin, a Jackson, Wyo.-based company that made protective cases for personal digital assistants, or PDAs. The wholly-owned Saunders subsidiary now sells protective cases, which are manufactured in China, for high-tech gadgets and gizmos like MP3 players, iPods, BlackBerrys and laptops.
Rural production
Saunders is headquartered in a two-story, 18th century home on a quiet road in Readfield where the company's founder, Harry Saunders, once lived. Its door is just a few yards from the entrance to the manufacturing facility, a long, one-story building in which dozens of Saunders employees man machines or work on assembly lines building form holders and portable desktops. The rhythmic sounds of the machines as they stamp, press and bend the aluminum sheets create a symphony you could only find on a manufacturing floor. "Who would have thought this goes on in Readfield, Maine?" asks Jim Dean, Saunders' group marketing manager, as he stands among pallets of form holders ready to ship.
The office products industry has changed significantly since Harry Saunders founded the company with his son Joe in 1947. Twenty years ago, Saunders would manufacture a form holder, for instance, at a cost of $5 and sell it for $8 to a distributor, who would then sell it for $12 to a wholesaler, who would sell it to a retail store for $18, until it finally reached the consumer, who would pay $24 for something it cost Saunders $5 to make, Rosmarin says.
Companies like Staples revolutionized the distribution model by buying products straight from manufacturers to sell directly to consumers, cutting out the middlemen and reducing the prices for consumers. This new distribution model has changed the way Saunders does business. The irony is that Office Depot and Staples are some of Saunders' biggest customers, but they're also competitors, Rosmarin says.
Saunders used to sell its branded products in Office Depot. Today, the portable desktops — picture something with the dimensions of a clip board, but that opens to reveal a compartment to store anything from a cell phone to a tape measure — on the shelves of Office Depot are still manufactured by Saunders, but they carry the generic "Office Depot" brand. Office Depot could have imported products from Asia for its in-house branded clipboards, but rather than lose Office Depot's business, Rosmarin decided to reduce Saunders' selling price "to maintain a competitive posture" and protect its market share, all at the expense of its brand. "The big box stores do a marvelous job of cutting manufacturers down to little or no margin," Rosmarin says. "And they used Chinese manufacturers to do it."
To try to change the distribution model in Saunders' favor, Rosmarin in April founded MFGdirect.com, a website manufacturers of consumer products like Saunders can use to sell their products directly to the customers. "Ultimately, that's the most effective way to go to market," Rosmarin says. So far, there are 15 manufacturers selling products on the website. Rosmarin won't disclose the site's revenues, but says it's a "significant" amount, and that if sales were to double it would outpace Saunders' sales to big-box stores like Office Depot and Staples. "So there are other ways," he says. "Sales are important, but if you don't have profitable sales, they don't mean anything."
The threat of cheap imports means Saunders sells cheap to stores like Office Depot, which results in deep cuts in its profit margin. The form holder Saunders once produced for $5 and could sell to a wholesaler for $12 now sells to Office Depot for $6, Rosmarin says. "So you can see what happens to the profit margin," he says.
To stay in business with these smaller margins, Saunders has had to find ways to cut its costs, find efficiencies, reduce defects, etc. At its peak, Saunders employed 200. It now employs roughly 75. The company has invested in new tooling techniques to make the manufacturing process more efficient.
Still, revenue has fallen a bit since it posted $30 million in 2005. Rosmarin says the drop is a combination of shrinking profit margins, the rise in aluminum costs over the past three years and the sale of a subsidiary in Fort Fairfield, Graphic Utilities, an ink manufacturer that added $3 million to Saunders' bottom line.
The China question
Right now Saunders manufactures 70% of its products in the United States — 50% in Readfield and 20% at a distribution center it owns in Mississippi — and the rest in China. If you'd asked John Rosmarin three years ago if Saunders Manufacturing would ever be able to move the manufacturing of all its products from China back to the United States, he would have said, "No way."
Now, that's a "realistic" possibility, he says. While competing with Chinese manufacturers is still the largest challenge for Saunders, Rosmarin says there are signs the landscape is changing. The products Saunders buys from China have been increasing in price. This is a result of a growing middle class in China that is demanding higher wages and more benefits. The government, under tremendous pressure from countries like the United States and the European Union, has decreased subsidies it gives to manufacturers, according to Rosmarin. The Chinese currency being pegged to the U.S. dollar also means Chinese manufacturers are paying more to import items. "All this is good news for U.S. manufacturers," Rosmarin says. "Although it's not a level playing field now, we're going to be able to compete better than we ever have before because their costs are rising."
Then again, doing business in Maine is tough enough, Rosmarin says. Maine is the "least friendly business state you want to go to," he says, noting a tough regulatory environment and the fact that the state "aggressively goes after every bit of tax dollar they can." Yet, he opted to keep the company in Readfield "because of loyalty to the state," he says. "Not because the state encouraged it."
Saunders was a family-owned business for two generations before Rosmarin bought the company in 2005. But he has no intention of turning Saunders into a family heirloom. His daughter works there part time, and his wife will help out when needed, but Rosmarin says they'll probably never be running the show. He expects the company to continue growing, and forecasts "modest growth" this year, with revenues "north of $25 million, but less than $30 million," he says. His plan is to sell the business to other managers at the company in five or six years once he's ready to retire. In the meantime, he'll avoid "outrageous risks," he says. "The goal is to perpetuate the company."
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