Craig Gates: Yes that’s a very perceptive question. What we’re moving from is a factory that was loaded with the overall ability to handle anything that happens at any customer at any time. And we’re moving to a factory that is specifically loaded by customer to provide whatever services the customer decides that they would like to pay for. So it’s almost impossible. At least we found it to be so to control costs when you’re peanut butter doing it over the entire facility are nine facilities. When you have specifically talked with existing and new customers about what is it you’re looking for and this is your base price. And if you want to be able to call us and switch back and forth in the day we’re going to have to add this much support labor.
And if you’re not willing to pay for in Mexico but you want it then you probably ought to go somewhere else. And if you do want to pay for it, maybe it makes more sense at the levels you think you’re going to need to move to the states. And so we have seen some customers who have decided to move their production two our one of our facilities in the States.
George Melas: Some [indiscernible] to Mexico or to [indiscernible]in the US?
Craig Gates: Yes not a large amount but some
George Melas: Okay. Yes I am just confused about how you run a plant like this or nine facilities always — a different set of expectations among different customers. And in a way I sort of love the fact that we were sort of like a real differentiation and design the handling difficult job that then were sticky. But it seems that these new customer is not really that, they’re pretty commodity oriented guy. Well maybe not – way too mismatch in to….
Craig Gates: No. It’s a really good question and I want to make sure we’re perfectly clear on it because it’s a very key strategic portion of our thinking through. Okay. So we talk about design capabilities with difficult designs and difficult products that make those products sticky. Those designs and those processes come out of the engineering staff in Spokane. The ability to manage a poorly designed or dodgy product that Key Tronic did design that we just transferred that has to come out of the folks in [indiscernible]. So when we cut our ability to provide service on a peanut butter level that means that if a customer wants to transfer to us a product that has a dodgy process, we know upfront say yes, we don’t we don’t want to call your baby ugly, but your baby’s kind of ugly and realize that you have quotes from other suppliers that are lower than our quote and we are happy to give you a quote that would be dirt floor levels of engineering support, but you’re not going to succeed building this product with this design in a factory without engineering services.
So we’re either going to have to agree that our price is going to be higher than what you’re hoping for or we’re going to have to help you change the design or you’re going to have to go somewhere else with this product. So that’s I don’t know if that helps you, but that is a little bit of insight to how we’re doing it. And then secondly with customers that have said yes, we want we want this level of service. It’s much easier to control the costs since we already have a lot of practice in creating miniature factories within factories. So we have a little factory inside a big factory that we can say all right, we’re going to put one or two people on the support for this department and they’re not they’re not just on the overall salary supporting the whole company whenever a problem comes up.
They’re only going to be full time on this department building this product for this customer, because this customer is paying for it. So, it’s much easier to control the cost and much easier to calculate the cost when you’ve got it basically laser-pointed onto a product and a customer rather than smeared across an overall strategic intent of being high service for everybody. And we haven’t lost the ability to market ourselves as a high-service supplier out of Juarez. What we change is our ability to provide a low service cost for those people who want it. So, it’s kind of like one of the few things I took away from business school was if you can’t be niche, you have to be low cost. So, we now have the ability, if we are not niche by virtue of design or service levels to be low cost out of Juarez by clearly defining to the customer upfront that if you’re going to want this, it’s going to cost this.
Does that make sense?
George Melas: It does make sense. It’s an interesting thing to manage. Let me ask a question here that’s related to that. So, does that mean that the conversation that you have with your customers is meaningfully different than it was before?
Craig Gates : Yes.
George Melas: It’s almost like you’re proposing alternatives for them, and they can choose from that, but you didn’t do that really before.
Craig Gates : We didn’t have the opportunity to say, if you want to come to Juarez and be a low-cost, low-service customer, here is your new price, because we didn’t have the capability of removing all of that peanut-buttered overhead from our cost structure on a given quote. And even if you could do that, it takes a while to figure out on a human product, what that cost should be if you’re trying to come up with a new formula. And if you can’t do that quickly, it’s hard to convince the customer that you actually are going to have that ability to give them what they want in very, very low cost, low service. So, we have right now almost 80 active quotes and people want two to three weeks of response time on a quote. And if you’re trying to recalculate your cost pressure every time you get a weird product, you can’t do it quick enough. It’s much easier to add, then it needs to try to find way subtract.
George Melas: Okay. And if you look at your customers now in Juarez, they are mostly the niche. They mostly the high service customers. The low cost is still a very small group, but do you think that’s where the growth will come?
