Executive Briefings

A High-Tech Manufacturer That Didn't Follow the Crowd

Anyone following the business news in recent weeks could have easily gotten the impression that (1) the U.S. has lost virtually all of its manufacturing capacity to China and (2) the making of high-tech products today is entirely dependent upon armies of workers turning out goods in conditions that border on slave labor. While there's more than a grain of truth in those two statements, they don't tell the whole story.

Creation Technologies LP is a contract manufacturer with roots in Western Canada. Twenty years ago, it was a C$1m start-up; today it has 11 business units in North America and China and annual revenues of more than C$500m. Note the presence of North America in that last sentence - in fact, all but one of Creation's plants are located there. (The 11th is in Changzhou, China.)

How has Creation managed to avoid the stampede to China? For one thing, it doesn't play in the same space as a mega-manufacturer like Foxconn. Creation's primary focus isn't on consumer products such as smartphones or tablet computers. Those devices lend themselves to endlessly repetitive tasks and fairly stable bills of materials. (Unless a certain chairman decides to switch out the screens on his popular line of smartphones at the last minute.)

Creation's sweet spot is making devices for medical, networking, telecommunications, transportation, defense and industrial controls. You won't find any of those products at the local Walmart. In addition, this Tier-2 provider has adopted a regional manufacturing model, with most customers located within a 50-mile radius of a Creation business unit. Currently the company has six facilities in the U.S. and four in Canada. Each is small by electronics industry standards, covering between 40,000 and 80,000 square feet and employing a workforce of around 350.

The advantage to this approach is that Creation can stay much closer to its customers on a day-to-day basis. The migration of so much North American plant capacity to China has left original equipment manufacturers without easy access to their Tier 1 providers, says David Longshore, general manager in Creation's Santa Clara, Calif. business unit. By contrast, the company's multiple locations in the U.S. has allowed it to provide customers with "a high touch-point," he says. Its not uncommon for a client's own personnel to be onsite at one of Creation's facilities from three to five days a week, collaborating on engineering details, new products and supply-chain strategies.

One instance where Creation's strategy paid off was the earthquake and tsunami that struck Japan in March of last year. Longshore says the company drew on its various units to come up quickly with a business continuity plan that reached all the way back to raw materials suppliers. It stayed in close communication with nearby customers the entire time. In the process, Creation was able to maintain a 100-percent on-time delivery record throughout the crisis. A similar situation arose with the flooding in Thailand during the second half of 2011.

One of Creation's regular customers is Stoke Inc., a provider of equipment to the mobile broadband data market. Longshore says Creation is involved in Stoke's engineering process "on the very front end." It helps the customer to determine which components should be used, how they should be assembled on the circuit board, and how a small change in design will affect the item's final price. Stoke, in turn, advises Creation on its sourcing strategy, letting it know if there's a supplier about which the manufacturer ought to be concerned.

As for the human element, Longshore says Creation's insistence on maintaining relatively small manufacturing plants avoids the drone-like environment that has become legendary at Foxconn and similar operations around the world. "If I have a facility with 10,000 employees," he says, "there's not a lot of intimacy between me and [them]. There isn't that camaraderie."

Nobody expects a high-tech plant to be a summer camp, but Longshore insists that Creation is a better place to work than its much larger counterparts. In a sense, the nature of the company's products makes it possible to take a more humane approach. Most of its highly complex units don't fit into the rigid processes that control the making of, say, an iPad. In Creation's world, the total cost of ownership is more important than base wage rates. The logistics of getting product to market must also be taken into account. "If you're driving two miles to a Creation facility, versus putting your leadership team on a plane, you realize that North America can be competitive," says Longshore.

Creation is anything but small - it claims to rank among the top 50 global and top 10 Northern American electronic manufacturing services providers - but it seems to know its limits. Longshore doesn't expect the company to venture into the cutthroat world of consumer products anytime soon. At the same time, it's not averse to expansion, having acquired more than half a dozen entities over the last five years. Recent market growth could result in yet another new business unit in Santa Clara; Creation already has two in Western Canada that are less than a mile apart.

Given the realities of global supply chains today, I'd be surprised to see a lot of manufacturers successfully duplicating Creation's model of producing mostly in North America. The company appears to have achieved the perfect marriage of corporate mission and market realities. Still, it does demonstrate that there's a place for manufacturing operations in North America that don't follow the crowd.

"We're going to stay true to our model," says Longshore. "We're not looking to have a campus with hundreds of thousands of square feet in China, and thousands of employees. Our culture isn't sustainable with that."

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Anyone following the business news in recent weeks could have easily gotten the impression that (1) the U.S. has lost virtually all of its manufacturing capacity to China and (2) the making of high-tech products today is entirely dependent upon armies of workers turning out goods in conditions that border on slave labor. While there's more than a grain of truth in those two statements, they don't tell the whole story.

Creation Technologies LP is a contract manufacturer with roots in Western Canada. Twenty years ago, it was a C$1m start-up; today it has 11 business units in North America and China and annual revenues of more than C$500m. Note the presence of North America in that last sentence - in fact, all but one of Creation's plants are located there. (The 11th is in Changzhou, China.)

How has Creation managed to avoid the stampede to China? For one thing, it doesn't play in the same space as a mega-manufacturer like Foxconn. Creation's primary focus isn't on consumer products such as smartphones or tablet computers. Those devices lend themselves to endlessly repetitive tasks and fairly stable bills of materials. (Unless a certain chairman decides to switch out the screens on his popular line of smartphones at the last minute.)

Creation's sweet spot is making devices for medical, networking, telecommunications, transportation, defense and industrial controls. You won't find any of those products at the local Walmart. In addition, this Tier-2 provider has adopted a regional manufacturing model, with most customers located within a 50-mile radius of a Creation business unit. Currently the company has six facilities in the U.S. and four in Canada. Each is small by electronics industry standards, covering between 40,000 and 80,000 square feet and employing a workforce of around 350.

The advantage to this approach is that Creation can stay much closer to its customers on a day-to-day basis. The migration of so much North American plant capacity to China has left original equipment manufacturers without easy access to their Tier 1 providers, says David Longshore, general manager in Creation's Santa Clara, Calif. business unit. By contrast, the company's multiple locations in the U.S. has allowed it to provide customers with "a high touch-point," he says. Its not uncommon for a client's own personnel to be onsite at one of Creation's facilities from three to five days a week, collaborating on engineering details, new products and supply-chain strategies.

One instance where Creation's strategy paid off was the earthquake and tsunami that struck Japan in March of last year. Longshore says the company drew on its various units to come up quickly with a business continuity plan that reached all the way back to raw materials suppliers. It stayed in close communication with nearby customers the entire time. In the process, Creation was able to maintain a 100-percent on-time delivery record throughout the crisis. A similar situation arose with the flooding in Thailand during the second half of 2011.

One of Creation's regular customers is Stoke Inc., a provider of equipment to the mobile broadband data market. Longshore says Creation is involved in Stoke's engineering process "on the very front end." It helps the customer to determine which components should be used, how they should be assembled on the circuit board, and how a small change in design will affect the item's final price. Stoke, in turn, advises Creation on its sourcing strategy, letting it know if there's a supplier about which the manufacturer ought to be concerned.

As for the human element, Longshore says Creation's insistence on maintaining relatively small manufacturing plants avoids the drone-like environment that has become legendary at Foxconn and similar operations around the world. "If I have a facility with 10,000 employees," he says, "there's not a lot of intimacy between me and [them]. There isn't that camaraderie."

Nobody expects a high-tech plant to be a summer camp, but Longshore insists that Creation is a better place to work than its much larger counterparts. In a sense, the nature of the company's products makes it possible to take a more humane approach. Most of its highly complex units don't fit into the rigid processes that control the making of, say, an iPad. In Creation's world, the total cost of ownership is more important than base wage rates. The logistics of getting product to market must also be taken into account. "If you're driving two miles to a Creation facility, versus putting your leadership team on a plane, you realize that North America can be competitive," says Longshore.

Creation is anything but small - it claims to rank among the top 50 global and top 10 Northern American electronic manufacturing services providers - but it seems to know its limits. Longshore doesn't expect the company to venture into the cutthroat world of consumer products anytime soon. At the same time, it's not averse to expansion, having acquired more than half a dozen entities over the last five years. Recent market growth could result in yet another new business unit in Santa Clara; Creation already has two in Western Canada that are less than a mile apart.

Given the realities of global supply chains today, I'd be surprised to see a lot of manufacturers successfully duplicating Creation's model of producing mostly in North America. The company appears to have achieved the perfect marriage of corporate mission and market realities. Still, it does demonstrate that there's a place for manufacturing operations in North America that don't follow the crowd.

"We're going to stay true to our model," says Longshore. "We're not looking to have a campus with hundreds of thousands of square feet in China, and thousands of employees. Our culture isn't sustainable with that."

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