The Supply Side: Creative Things responding to challenges of onshoring

story by Kim Souza
ksouza@thecitywire.com

No one told Keith Scheffler that moving his plastics manufacturing business from Asia to Lowell, Ark., would be easy, even if Wal-Mart Stores is the company’s largest customer.

Scheffler, owner and CEO of Creative Things, said onshoring the business has been a five-year process and he’s still trying to figure it all out with the help of lead lender Signature Bank and a state and local economic officials.

“Five years ago Gov. (Mike) Beebe gave me a direct challenge. He said, ‘It’s great that you are doing so well with your foreign operation, but what are you doing to help Arkansas and your local communities?’ It was a wake-up call to me,” Scheffler said.

Creative Things was already selling plastic products – dog toys, cell phone cases, etc. – to Wal-Mart as an importer when the retailer announced its 10-year, $250 billion additional product commitment for items made in the U.S., which helped to accelerate Scheffler’s timeline to get the business moved.

“We picked up our operation in Asia and moved it here, all but two lines, one of which will be moved over in the next few weeks. There were several challenges in getting the local site up and running smoothly with orders also increasing,” Scheffler said.

Creative Things has been able to create 64 jobs since last fall and plans to add 40 more  within the next six months to the operation now based in Lowell. The average wage is $15 per hour and finding the skilled labor has been a tedious process.

“We must have sorted through 300 to 500 applicants before we got to the 64. We are pulling folks in with no manufacturing experience in some cases and training them. But getting the right team in place is critical,” he said. “We feel so strongly about the shortage in skilled manufacturing labor we are working with area schools and the state to get more training programs in place.”

The plant is now running at about 70% capacity and more equipment is needed for the pending expansion.

FUNDING PUZZLE
Grant Tennille, executive director of the Arkansas Development Commission, said the work to help fund the company’s move also has been a challenge.

“Piecing together the funding has taken some creative effort. It’s been challenging at times because Keith’s operation was viewed as a startup, despite his track record,” Tennille said.

Tennille said the state extended Creative Things a $280,000 grant for the first jobs it created. That was to be part of a $784,000 commitment to help gear up manufacturing jobs.

With funds running short in the Governor’s Quick Action Closing fund and the steep costs related to equipment needs for automation, Tennille said it’s taken the help of some local banks to extend operating capital toward this project.

He explained that the nature of this business, high front-end startup costs to make products for one customer in a short time window entailed risks that fell outside the return on investment capital requirements by the state. That said, the state has worked with a lending group who can syndicate loans for reduced risks and still get Creative Things the funding it needs for expansion, Tennille said. The state is then able to guarantee a portion of the loan.

Scheffler said he had no track record of manufacturing in the U.S., despite the fact he owned two plants in Asia. That lack of local financial history is like someone with a zero credit score trying to get a loan. He said Signature Bank has been a huge part of his ability to proceed with the planned expansion. 

Gary Head, president of Signature Bank, also spoke highly of Scheffler. 

“As a twice-wounded soldier, he exemplifies the word ‘bravery’ and we at Signature Bank know what it’s like to be a startup and face challenges. We believe in Keith’s ability to expand and grow this business and we feel good about the fact that his largest customer, Wal-Mart, can pay their bills on time,” Head said.

He said the bank is just doing its job in helping Creative Things expand and create jobs.

“That’s the very thing a community bank should do,” Head said.

THE “WHY” OF IT
Scheffler told The City Wire there were plenty of reasons as to how he moved the operation, but none of them are as significant as why he did it.

“We wanted to bring solid jobs and ongoing personal involvement into our community,” he explained. 

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He said there is real opportunity for growth, not only in his own business but also in the ancillary supplier relationships he has been to cultivate in recent months.

“We work with Alpha Packaging down in Greenwood (Sebastian County) for all of our printing and packaging needs. They work with me on a ‘just in time’ basis. We also have worked with a local temp agency and of course Signature Bank,” Scheffler said.

He said managing the supply chain of his products sold to Wal-Mart has become much easier since he onshored the operation. He’s saving between 10% and 12% on items by not having to ship from Asia.

“I have erased the uncertainty related to customs and potential dock worker strikes that can hold up shipments, that already takes a minimum of 120 days to import. This shortened time window is huge in seasonal and trendy products that I can now turn out as needed and just in time. This also gives me much better inventory controls,” Scheffler said.

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Comments

Banks are the Biggest Issue

The ability to obtain financing to relocate business from the Far East is the biggest issue facing companies. The banks and regulators think anyone who manufactures in the U.S. is stupid and they will not lend to them. Have a friend in Chicago who wants to move his manufacturing from China, but cannot find anyone to finance him. Profitable business, stable customer base, no other debt, but everyone tells him he is stupid to manufacture in the States. Also, wish you would have located in Fort Smith. With Whirlpool leaving we have over a hundred or more experienced injection molding operators in this area.

Sam's Mind can be a dangerous place.  Only the brave and wise need enter.

Reshoring Initiative

Yes, we agree that many companies are finding that overseas locations are becoming less attractive and the Reshoring trend is gaining momentum because it is helping U.S. manufacturers recover from offshoring's poor quality, trade secret thefts, supply chain disruptions and lengthy delivery times - all while staying cost competitive. As mentioned in the article, companies are reshoring because they are finding that having manufacturing near customers gives them better flexibility to respond to customers' changing needs, eliminates higher shipping expense, minimize supply chain disruptions and eliminates the larger production runs and inventories associated with long distance offshoring. These companies are investing and reshoring because it makes good economic sense to do so. In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the not-for-profit Reshoring Initiative’s free Total Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm