BY Brendan I. Koerner
In early 2010, somewhere high above the northern hemisphere, Mark Krywko decided he'd had enough. The CEO of Sleek Audio, a purveyor of high-end earphones, Krywko was flying home to Florida after yet another frustrating visit to Dongguan, China, where a contract factory assembled the majority of his company's products. He and his son, Jason, Sleek Audio's co-founder, made the long trip every few months to troubleshoot quality flaws. Every time the Krywkos visited Dongguan, their Chinese partners assured them everything was under control.
Those promises almost always proved empty. As he whiled away the airborne hours, Krywko made a mental list of all the manufacturing glitches that had nearly wrecked his company. There was the entire shipment of 10,000 earphones that Sleek Audio had to discard because they were improperly welded, a mistake that cost the company millions. Then there were the delivery delays caused by the factory's lackadaisical approach to deadlines, which forced the Krywkos to spend a fortune air-freighting products to the U.S. Even when orders were produced on schedule, Krywko wasn't too pleased with the situation:
The company always had precious cash tied up in inventory that took months to arrive after the prototypes had been approved. The headaches had finally become too exasperating to bear. And so, on that flight, he turned to Jason and said that he was done with Dongguan. "I can't do it anymore," he said. "Let's bring it home." Jason had been thinking the same thing. When the Krywkos returned to the United States, they searched for a manufacturing partner with the tools and expertise to produce their earphones. They found one just a few miles away from their Palmetto, Florida,
headquarters: Dynamic Innovations, a maker of ruggedized computers and other equipment. Sleek Audio quickly signed up. Today, more than a year since Krywko's decision to go against the offshoring tide. Sleek Audio has a fullscale manufacturing operation that can be reached via a 15-minute car ride rather than a 24-hour flight. Each earphone costs roughly 50 percent more to produce in Florida than in China, but Krywko is more than happy to pay the premium to know that botched orders and shipping delays won't ruin his company. And so far, the gambit appears to be paying off: Based on enthusiastic customer response. Sleek Audio is assured of having its most profitable year ever. For U.S. firms, the decision to manufacture overseas has long seemed a no-brainer. Labor costs in China and other developing nations have been so cheap that—as recently as two or three years ago—anyone who refused to offshore was viewed as a dinosaur, certain to go extinct as bolder companies built the future in Asia. But stamping out products in Guangdong
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Province is no longer the bargain it once was, and U.S. manufacturing is no longer as expensive. As the labor equation has balanced out, companies—particularly the small to medium-size businesses that make up the innovative guts of America's technology industry—are taking a long, hard look at the downsides of extending their supply chains to the other side of the planet. "Companies are looking to base their decisions on more than just costs," says Simon Ellis, head of supply-chain strategies practice at IDC Manufacturing Insights, a market research firm. Indeed, when accounting giant KPMG International recently asked 196 senior executives to list their top concerns for 2011 and 2012, labor costs ranked below product quality and fluctuations in shipping rates and currency values. And 25 percent of the companies that responded to a January 2011 survey by MFG.com, an online sourcing marketplace, said they had recently brought all or part of their manufacturing back to North