PRL Goes to China - Continued

Chinese Business Dinner
After leaving AFT, the combination of a full day of site visits and jetlag put a few of us to sleep as we drove to dinner. But real sleep was still a long way off. It was time for dinner with Brian and Julie from Merida, a frame manufacturer we would visit the next morning.

We ate like kings, with dish after dish of delicious food: octopus-wrapped shrimps, shrimp with legs and antennae still attached, whole fish with hollow eyes, and dozens of new flavors from sweet to spicy. Between mouthfuls of food and spirited conversation, sounds of “Four dollar” could be heard around the table. In Taiwanese culture, a phrase that sounds much like “four dollar” means the equivalent of “cheers” or perhaps more accurately, “bottoms up.”

Not quite used to the Chinese drinking culture, we tried to toast with our tea whenever possible. However, it was also important not to offend their culture. Drinking is an integral part of Chinese business dealings and drinking between business partners is a sign of trust and breaking down of barriers. Bob told us that Specialized actually keeps a tally of those employees who can handle alcohol well and they are usually the ones who end up making the most trips to Asia for business deals. In fact, Bob said that he always carries a green powder (a type of traditional Chinese medicine) that helps curb the effects of hangover because the last thing he wants is impaired judgment when he makes a deal the next morning.

Needless to say, when we finally made it back to the Dragon Spring Hotel, sleep was the first order of business.

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24.August.2007

Times Are Changing

There are three kinds of manufacturing companies in China: 1) foreign-owned companies that export one hundred percent of their products, 2) joint-owned ventures with fifty percent domestic – fifty percent export products, and 3) locally-owned companies with one-hundred percent domestic sales. In order to build up local manufacturing capacity and adopt modern manufacturing techniques from abroad, the Chinese government has put several foreigner-friendly laws in place. The most popular law is China’s low corporate tax. Foreign-owned companies that export products from China have a corporate tax of only fifteen percent, as compared with the thirty percent tax for domestic companies, and up to forty percent tax that you see in the United States. While the skies look rosy for foreign investment today, the Chinese government is making changes to neutralize the tax structure over the next five years. Ultimately, they hope to settle on twenty-five percent for both local and foreign-owned enterprises. This still gives foreign-owned companies a decent advantage compared to their home turf, but the incentives are becoming fewer.

In fact, the Chinese government has already leveled the playing field where entry into China is concerned. Whereas foreigners could once get an eight-dollar visa to get into the Shenzhen manufacturing region, they now must pay the full visa price. These changes are small, but compounded with abrupt increases in minimum wage and value-added tax, they certainly add up.


Who Works for Specialized?

Mechanical engineering and industrial design students who have just graduated, who are bike junkies, who are attracted to the lunch-time rides and the biking culture. They usually want to get paid seventy-five or eighty grand a year, and end up getting paid fifty grand a year. And once they have learned to take a carbon fiber project from beginning to end, they start looking for a better-paying job.

Sitting in the car between factories, we brainstormed what it is that could keep a young engineer at Specialized. We decided that a huge factor is pride of authorship. I particularly liked Bob’s analogy:

"They say that in your life, there’s this currency that you trade in with different people. To certain people, the currency they trade in has a lot of value based on their personality and what’s important in their life. With your family, you always have debits and credits, right? And there’s a lot of value to this currency that may not be cash."

And at Specialized, you see that currency flowing like gold. There’s a pride of when that tool gets opened up and that frame comes out and you look at it, and you know that you were the one who actually did the design and you were watching that thing go from its inception up to the point when you’re watching in the Tour de France and someone is using that product to win a stage of the Tour de France and that currency is so valuable.

Some engineers at Specialized never earned a formal degree. They are former downhill bike racers turned engineers. And unlike many engineers straight out of college, these self-taught engineers often have an intuitive sense of what designs will work and which ones won’t. Because they have become Specialized experts, they usually end up working at Specialized for twenty or thirty years.


Merida Visit

Six years ago, Merida became a shareholder in Specialized. In fact, the two companies are so close that Bob has been known to stay in the operator’s dormitory. Merida is different from most other Chinese manufacturers because it uses the Toyota Production System (TPS) and pays such close attention to detail. Their main product is welded aluminum frames and they also assemble and package bikes in preparation for export.

Upon entering Merida’s conference room, we saw a completed bike leaning against the wall. It was Specialized’s new racing bike for kids that will be coming out soon. Bob immediately jumped on the bike and started trying things out. He was a fountain of ideas: the handle bars are a little too wide for a kid, and could they please be black rather than silver? And what about the shifter? It’s built for three gears, but it’s only a dual train bike. About four or five Merida engineers hovered around the bike and the conversation floated between English and Chinese. It was Lawrence who came up with the most promising solution: why not leave the shifter as is (since no one makes dual shifters) and have first gear do nothing? Those were the magic words and the bike was whisked away for immediate R&D.

It was time to take a brief overview visit of the factory before all the operators went to lunch. “Brief” is never brief for a group of manufacturing nerds, and it was difficult to get beyond swuagging. Although we had purposefully left all video equipment behind, we still brought a camera and swuagging was far too interesting to rush our way through. Swuagging involves taking pieces of metal pipe and putting them into a machine that hammers the pipe with four long curved hammers. The result is a tapered tube with completely smooth walls!

Once we had our fill of swuagging, we moved onwards and had just enough time to catch butting (both double and triple), tapering, and oxy-acetylene brazing with aluminum before lunch. Any Stanford student who has taken ME 203 with Professor Beach will be stunned at the last item, but it’s true, they were brazing aluminum.

We followed the operators to lunch to have a look at their cafeteria and we would have been more than happy to join them. The room was air conditioned, bright, clean, and the food looked delicious. Alas, Merida had already prepared a pizza lunch for us up in the conference room.

After lunch, Julie gave a powerpoint presentation about Merida. We were surprised to hear that Merida also produces magnesium computer cases. Unfortunately, the case-making machinery is more of a liability than an asset. At the time they installed the systems, Merida was using cutting edge technology. They pioneered the way in magnesium computer cases at the time when the .com boom was happening in the U.S. and business was good. However, the capital cost of the equipment was very high and once the Silicon Valley bubble burst, they were never able to recover the cost. The computer industry is by nature very fickle—many ups and downs—which is one reason why Merida likes working with Specialized. The bike industry is much more stable and based on a foundation of long-term relationships.


Velo Visit

Velo is not a brand in itself. Velo makes grips and bike saddles, but when you walk into their show room, you won’t see any “Velo” label products. Richie, Surface, and all of Specialized’s saddles are made here. In fact, there are over fifty OEM brands produced at Velo.

Globally, there are only three or four saddle manufacturers. Why? The tooling is incredibly expensive. Each saddle requires a different base mold at $20,000 a mold and if you want seat form manufacturing to keep up with the matching injection molded parts, you need twelve of these saddle molds per injection molding machine. It’s easy to see that prices quickly add up.

As a petroleum-based business, prices are already volatile and Stella, the woman running Velo, says that she has seen the raw material double in price since she started. Fortunately, Stella has a deal with the supplier and buys at a discounted rate for the price of having to project out a year’s worth of material.

In order to distribute some of the risk, Stella invested in keyboard pad production and has now become Microsoft’s sole supplier.

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25.August.2007

Kenda Visit – Tire Manufacturing

If you’ve ever looked at a new bike tire, you’ve probably seen the little hairs that cover the treads and the parting line that runs around the middle of the outside. There is just enough there to make you start pondering how it was made…

Kenda is a public company that was started in the late ‘70s in Taiwan. They only produce tires and sixty percent of the tires they produce are made for bicycles. Although all of Kenda’s R&D is done in Taiwan, it has two manufacturing sites, one in Taiwan and one in China. The Taiwanese factory produces higher end tires. The tire casings range from sixty threads per inch (TPI) to one hundred twenty TPI. They also sew Kevlar into the treads which helps with flat protection and sewing it into the beads helps achieve a lighter weight tire.

Kenda’s China plant produces lower value tires and the casings range from sixty TPI down to as low as eighteen TPI. All the beads are all steel, which means the tires are a bit heavier. At both factories, the tire casings are made out of nylon because Kevlar is exclusively owned by DuPont and getting the license to produce Kevlar casings does not have enough of a performance advantage to justify the cost.

We were surprised to learn that aside from Kevlar beads and carbon-enhanced tubeless road tires, there have been few advances in bicycle tire technology in the past fifteen years. Because most bike accidents are attributed to the tires, there is a lot of liability involved in tire production. As a result, designers are reluctant to innovate or deviate too far from what works.

Still, Specialized was one of the first tire innovators in the bike industry. In fact, Specialized started as a tire company and only sold tires for the first five years of operation. In the late ‘70s, Michael, president of Specialized, was the first to innovate on the classical tubular tires that everyone was using and made a new design, known as the “turbo tire.” Although Specialized is best known for their bikes, it wasn’t until 1984 that Specialized produced its first bike, known as the Stump Jumper.

Today, tires represent seven percent of the overall cost of a bike (not including later assembly costs) and Specialized buys seven million bike tires a year.

So, how are they made?
Tire manufacturing in reverse
• The final product is a complete bike tire, with treads and all
• How did it assume this shape?
o Well, there had to be a mold of some sort
o As it turns out, the tire mold comes in two halves. That explains why you always see a parting line down the center of a bike tire, where it looks like a bit of flash has occurred.
o The molds are made of structural steel (SS 41 type, which means that the tensile strength is 41 kg/mm^2)
o The molds, which include all the tread details and small holes for excess spill-over, have been created through EDM
o Before going into use, the mold has been sand blasted and coated with a thin layer of grease
o Each molds costs approximately $100,000 NT (New Taiwan Dollars) (divide by 35 to get about $3,000 US dollars)
• What goes into the mold?
o A fairly flat rubber ring (a loop of rubber)
o This loop of rubber is pre-formed to assume the correct diameter and make sure that the beads are also the exact diameter they should be (the beads are formed from rubber-coated steel rods that are tacked together by a piece of sticky rubber—not welded!—and are still somewhat malleable)
• How does the rubber ring get cooked?
o A tubular bladder is placed inside the pre-formed rubber ring and this assembly is placed inside the mold, which is one of seven molds that are stacked on top of each other along a vertical rod. All the molds consist of two halves and the seven molds can all slide apart on the vertical rod so that the rubber ring and bladder can be placed inside.
o Steam is inserted into the inner tube and in a chamber around the outside of the tube and it is vulcanized into its final form (including treads and logos)

Back to Merida

There was still a lot to see at Merida and Bob would not let us leave Shenzhen without at least seeing painting and assembly of aluminum welded bike frames. In general, painting creates the biggest bottleneck in frame production and limits Merida to 4800 bikes per day. Each frame needs multiple paint layers and each layer needs a certain amount of time to dry (with bright red needing the most coats). Frames are air-sprayed to remove dust between coats and the final process is to spray on a clear coat which adds depth to the decals beneath.

On the assembly line, immense care is taken to protect the frames. Operators wrap paper tubes around the frame posts and add grease before adding any bolts or pedals. A bike takes 28 seconds to travel down the assembly line and ends up in a Specialized box, ready for shipping. Five bikes out of every batch of 650 goes through comprehensive quality control testing.

Merida implements many more quality control efforts than other manufacturers. After a frame goes through the T4 heat treatment process (at 530 degrees C), it goes through fourteen cold setting adjustments in order to get the geometry just right. Then the frames go into T6 heat treatment (at 180 degrees C). After T6 treatment, the frame is checked again and if needed, it will go through another adjustment and go back into the T4 oven, checking, and the T6 oven. This cycle may happen up to three times before the aluminum must be scrapped.

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27.August.2007

Greenwood Metal Stamping

Walking into the conference room at Greenwood Metal Stamping was like walking into a candy store. Shiny, matted, green, purple, red, blue, bent, curved, textured pieces of aluminum were out on display. In an instant, we were surrounding the table, poking and prodding and trying to ascertain how this or that piece had been made. Questions were flying left and right.

We saw pieces of anodized aluminum that were as shiny as mirrors. But don’t you need to lightly chemically etch the surface of the workpiece before you can anodize? How do you get the surface so smooth?

There was an Apple keyboard frame—a solid piece of aluminum with a hole for each keyboard key. How did they punch so many holes without any warping? Maybe using a duplicator punch press?

We saw a silver camera lens cap with a golden rim. Scott tested us…how do you get the gold rim without masking? We flipped over the piece and saw a tiny fingernail scratch—someone else had apparently wondered the same thing. Just do a double layer anodizing and then use laser etching to remove a layer of silver along the top edge.

Then we saw a piece that really stumped us…a piece of plastic protruded from a piece of aluminum, but there were no fasteners anywhere to be seen...Scott told us this process is called nanomolding. It was recently developed by a Japanese company that came up with a chemical process of attaching plastic to aluminum through insertion molding—no fasteners required!

At about this point, Lawrence Kwok, Greenwood’s Project Manager, and his wife Debbie arrived and Lawrence gave us an overview of Greenwood Metal Stamping (GMS).

GMS began as a PCB manufacturer, but their extensive experience in chemical etching provided the perfect background for sheet metal forming and finishes, which is their main business today. GMS has three thousand employees and their production capabilities include everything from stamping and forming to diamond cutting, sand blasting, hairlining, and laser grounding. GMS also creates almost all of its tooling in house.

Having all these processes under one roof is very valuable, especially for high volume production. If there is a problem with the anodizing because the sandblasting is not quite right, the anodizing team doesn’t need to put the parts in a car, ship them back to the sandblasting factory, and wait for the parts to return before starting over. If GMS were to outsource any of these processes, there is no way that it could produce 500,000 parts per month. (Not to mention the environmental benefits and waste reduction of having everything under the same roof.)

From the day a client first approaches GMS with a product, it usually has three to four weeks to have that product in production—that means having all the tooling completed and all the system glitches ironed out. To satisfy this demand, GMS produces approximately one hundred tools per month. This amounts to about six EDM machines and about twelve wire EDM machines in the tooling workshop.

When it comes to efficiency, GMS has thought through everything—down to the exact layout of the workspace and the location of each department. When you walk into the first building, you see thirty to fifty prototyping presses on the ground floor, the tooling designers sitting on the second floor overlooking one end of the hall, and the tool-making shop overlooking the other end of the hall. These three departments instruct and inform each other and need to be in close proximity.

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28.August.2007

Final Reflections

So, after one week in China, what did we learn about Chinese manufacturing? The favorite question from friends and family is always “What’s the secret to Chinese manufacturing? What’s the magic formula?”

In and of itself, a Chinese manufacturing plant has no secret and quite frankly not too much value. What we saw again and again throughout our trip is that manufacturing in China is like manufacturing anywhere…some plants are efficient, others have piles of inventory, some are vertically integrated, others are rather horizontal.


What distinguishes one manufacturing company from another seems to be its ability to build relationships—both with suppliers and with clients. We saw this during dinner (and its countless “four dollar”s), from Bob (who has known people like Stella for over thirty years), and in the conference room (where Bill suggested that we embark on a new relationship…a Merida-Stanford exchange program).

In working with U.S.-based design firms, Scott said that most don’t understand that manufacturing is a social interaction every bit as much as design is. According to Scott:

"You don’t just go visit your manufacturer when you’ve got defective parts you’ve received. For the designer in particular, there’s a whole lot to be gained by interacting with manufacturers and engaging them both in the conference room at the whiteboard…obviously walking through the factory (to enlighten yourself about tools and processes you didn’t think about), but also over the dinner table (especially over here in China). The importance to get to know people to see them not as a vendor/supplier/worker for you, but as someone you care about, that you work with is extremely valuable. Because once you’ve achieved that level of relationship, then it becomes really easy whether in person or remotely to engage people in your next projects, your next design. The things that good manufacturers can contribute to the design phase should never be underestimated."

At the end of the day, your manufacturer can only work with what you give them. As more and more manufacturing moves overseas, U.S. design firms are losing touch with manufacturing processes, and end up leaving more and more to be decided by the manufacturing company. It’s no wonder that you see designers eagerly open a sample shipment from their manufacturers only to look crestfallen when they see a product that doesn’t match their expectations. Thus, I leave you with one last Scottism: “The more you assume, the less likely you are to get what you want. The more you understand your manufacturer’s business, the better you’ll understand how they’re responding to what you’re asking them to do.” In other words, go visit some manufacturing plants and really get to know the people working there!