My understanding from talking to industrial engineers is that American manufacturing is quite competitive when the product is consistent. It's when you work in batches or need to make constant adjustments to the line or product (very labor intensive activities) that it gets prohibitively expensive.
It makes sense that Peloton foresees many, many years of sales without needing to update their hardware much.
I know some people that run a number of small manufacturing sites spread across the US. When they get something tricky, they send it to their factory in (to avoid flame wars) State A, which happens to spend more per student than the national average. Line workers have the freedom to experiment and improve the process until they have something very good, and then they move the line to their factory in State B, which happens to spend significantly less per student than the national average. Probably just a coincidence though.
PS - 2020 was their best year ever and 2021 could be even better. People are currently willing to pay American rates to avoid supply chain risk.
PPS - Ohio is a great location for Peloton. I bet they can get 70-80% of their product by value from supply manufacturers just within the state. Expand to Michigan and Indiana and you might be at 85 or 90%. This is in the Toledo metro area which already has a large auto manufacturing supply chain, as well as PV panel production. They’ve got plenty of workers and suppliers to draw from.
It was actually mostly serendipity! They’ve never created a factory from scratch; every single one was the purchase of a struggling, poorly-managed little place on the verge of bankruptcy, but with an order book. Each one had its own set of strengths and weaknesses, and they figure out how to use the combined entity to maximize each ones strengths.
And lack of spring and fall seasons. This is one of my favorite Ohio weather charts, temps are basically the same from June to the first week of October and then the bottom falls out.
> My understanding from talking to industrial engineers is that American manufacturing is quite competitive when the product is consistent.
When the product is consistent, you can get competitive pretty much everywhere. That's a luxury you will never have unless you are already a big MNC.
On paper, US manufacturing been cheaper than in China for quite a few years already, but you have to spell that "ON PAPER" with big bold letters.
1. Labour — flyover states had wages comparable to South China for 2-3 years.
2. Education — supposedly best in the world, supposedly, at least beating Chinese public secondary school
3. Supreme "intellectual" property regime — no comparison to China at all, you can sue whomever, whenever, for whatever, and barristers here are even calling you themselves to offer their services to sue your competitors
4. Supply chain — world's biggest companies are there, if they are all here, there must be at least something they all buy.
5. Taxes — US vs. China's tax rate are incomparable: 30% vs 60%-70% something depending on incalculable amount of fees, charges, levies
How things are in reality:
1. People in US you can hire cheaper than highschoolers in China are really not-employable, in other words people with problems.
2. Education is there, but only for people who can already dish out a sum, otherwise even a passable secondary education is not a given.
3. Yes, you can sue everybody, and the same applies in reverse too!
4. Those companies really do buy, and sell a lot of stuff, just not from you, but the same guy you buy your stuff in China
5. US taxes are half that of China, but Chinese accountants know how to run from taxes 10 times better than American accountants.
Supply chain for electronics nothing compares to China and Shenzhen, the people that can make little things at a moments notice, it's not very comparable.
There was a part we looked at, comparable came from the Nintendo Wii.
This part came from this little hackey shop in Shenzhen.
Essentially found out this 'world class product' had some very specialized parts made by tiny shops in China. That kind of adaptability is not quite in the USA.
Tool and Die as well.
But it could be I think if there were more demand for it.
Someone should do something about those IP laws. They are outdated relics of a bygone era. Patent lawyers are like family court lawyers. It brings no benefit to society. Those laws have allowed companies to take liberties.
I'd like to point out John Foley, the founder of Peloton, is an industrial engineer himself. For making a physical product, it's a great background to start with.
Lots of analogs to great programmers in terms of when to optimize what, and how. Manufacturing process selection, optimal batch size, make vs buy, accounting for supply chain uncertainty, profitability analysis, etc.
Huh, I would have thought constant changes would be easier onshore as it is easier to talk to the factory floor in real time to make the adjustments. Once that is all sorted out you then send it offshore as it is easily repeatable.
Labor onshore is expensive. If you only need a few it doesn't matter but once you have offshore labor they are flexible enough to handle changes. Onshore manufacturing implies a large amount of automation, but that automation limits the changes you can make and still fit into the automation. If the change is something that is CNC, then you can make the change easily. However if the change needs a whole new jig, making the jig is more expensive than having a skill machinist make the part by hand with a file - those skilled machinists are cheaper offshore. You pay off the jig over thousands (or millions) of product.
Once you have production offshore it is even harder. They may have made a few jigs (not as many as labor is cheap enough to not need them), but and odds are even in the worst case they can re-use all but one of those jigs. Thus once you are offshore it is better to let offshore do the prototype work.
I think people underestimate how much of offshore manufacturing is done by hand still. The cheapness comes from any factory being able to switch to just about any competitive production quickly. But they are much less likely to invest in equipment and automation.
At scale, there are also complications, like the cost of training, labor laws, or approving role changes with the union.
It makes sense that Peloton foresees many, many years of sales without needing to update their hardware much.