Growing trend for onshoring as PowerShield takes manufacturing inhouse

Thursday 24th September 2015

Kiwi specialist battery monitoring firm PowerShield, whose customers include the likes of Nasa, Microsoft, and Huawei, is entering a joint venture with an experienced local manufacturer where both benefit from cost savings rather than shifting production offshore in response to growing demand.

The Auckland based company will officially open its new Albany factory on Oct.1 and chief executive Len Thomas said he expected to immediately save around 15 to 20 percent on its contract manufacturing bill despite relatively low volume runs.

Manufacturing New Zealand said there has been a move in recent years for kiwi companies, especially those with higher value, more complex products, to bring manufacturing onshore. It’s part of a global trend that has seen a 70 percent reduction in offshore manufacturing in the US between 2003 and 2014, according to data from the Reshoring Initiative, which promotes onshore manufacturing in the US.

PowerShield’s power circuit boards were being made by a New Zealand contract manufacturer and Thomas assessed the cost-effectiveness of shifting manufacture to either China or Malaysia, given sales have risen 40 percent so far this financial year. “It’s not as cheap manufacturing offshore as many people think and it was cheaper to do it here than I thought,” he said.

Instead, the company has set up a hybrid inhouse model – a 60:40 owned manufacturing company, PowerShield Solutions, drawing on the expertise of David Todd, the founder and former majority owner of PowerShield's contract manufacturer, Quick Circuit.

Todd said there’s little incentive for a contract manufacturer to reduce costs because it will reduce their sales figures, a dilemma solved by a joint venture arrangement where both benefit. He’s confident of reducing PowerSheild’s production and supply chain costs by 30 percent within a year.

“That’s quite significant,” he said.

On paper, the Chinese and Malaysian contract manufacturers may offer a slight lower unit cost, but companies have to consider the total cost of ownership of their product, including having to fly in engineers to fix problems and difficulties monitoring quality, Todd said.

One of the biggest intangible benefits will be the company’s design engineers working face to face with the production staff. PowerShield’s previously high stock inventory could also be reduced by better direct communication between the manufacturing and sales operations.

Manufacturing NZ executive director Catherine Beard said rising labour costs in China and the difficulty of protecting intellectual property had caused a number of kiwi companies to rethink offshoring in the past two years. Another factor was the previously high dollar, which had allowed companies to invest in new, more efficient plant and equipment that may have been too expensive in the past.

The hollowing out of New Zealand’s manufacturing industry has left a skills shortage, Beard said, with an Export New Zealand survey due out soon showing nearly 69 percent of respondents were experiencing difficulty finding enough qualified staff.

Set up in 1997 by majority shareholder and non-executive director John Grant, PowerShield monitors and manages mega-banks of batteries that are pulled into service in the event of a power outage at critical infrastructure. That guarantee of back-up power is crucial for emergency communications for customers in 30 countries such as Whitehall’s Ministry of Defence or the San Diego Sheriff’s department. Call centres, which are growing worldwide, now account for around a third of its annual revenue, which sits between $5 million and $10 million.

PowerShield’s system monitors whether individual battery cells, often numbering into their thousands at one site, and the system as a whole, are working. The data transmits daily to PowerShield’s secure server and it also has a remote reporting service that gives customers detailed analysis so they’re alerted of any potential dangers and the need for preventative maintenance.

In New Zealand PowerShield monitors the batteries for Meridian’s wind farms, Genesis Energy’s Huntly power station, Auckland Watercare’s urban water reservoirs, the Department of Internal Affairs, and SkyCity’s casinos.

BusinessDesk.co.nz

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