Re-Tales #38: Supply Chains—Keeping It Local

McIntosh CEO Charlie Randall, pictured outside the company's Binghamton factory in 2006. (Photo: John Atkinson)

To remain profitable, many hi-fi companies have outsourced production to faraway countries with lower labor costs. That, certainly, is a legitimate way of doing business. Yet many other hi-fi makers have chosen to work with suppliers that are local, regional, or at least domestic. There are good reasons for doing so, those manufacturers maintain.

Some of the advantages are obvious. Local labor may cost more, but shipping what they make is much cheaper. Cost "is only one of the factors to account for when designing and manufacturing complex objects such as a turntable, a loudspeaker, or a streaming DAC—but it's often what companies and customers focus on," Gold Note Sales and Marketing Manager Tom Dolfi and CEO/Founder Maurizio Aterini wrote in a joint email response to questions. In a perfectionist industry like this one, quality is a huge consideration. Response time matters, too. Those advantages came to the fore during the pandemic, when supply chains failed and shipping slowed way down and got expensive, as reported in prior Re-Tales columns (footnote 1).

McIntosh Labs manufactures many products in its factory in Binghamton, New York. The vertically integrated company does more than stuff circuit boards there; it manufactures parts in-house, from output transformers to the magnet wire used to wind them. They also stamp, cut, and form sheet metal. In a recent telephone conversation, McIntosh Group CEO Charlie Randall noted that while many companies have shifted toward overseas suppliers, it doesn't always make sense.

"We're not a small manufacturer and not a huge manufacturer," Randall said of McIntosh. For such a company, moving production to China (for example) may be tempting, but it can be difficult to control quality at big overseas factories. And while labor costs are cheaper overseas, the cost savings don't always add up. McIntosh may be able to save 10%, he told me, but only if they buy in bulk—often a year's worth of product or more—which carries significant costs and risks. Plus, with higher import duties, "all that cost savings would have been eaten up anyway."

Much extrusion work is done in China, for McIntosh as for other companies—but extruded products are often large and heavy; companies must factor in the cost and speed of shipping. Shipping by air is expensive, while shipping by sea from Asia can take 45 days or longer. Aside from the costs borne by the company, overseas production has environmental costs—fossil fuels propel jets and ships—and social costs in the form of displaced workers.

In Europe, it's common for manufacturers to work with regional suppliers. Long-term relationships are often easier to foster and maintain with suppliers who are closer to home, whether they're just down the road or a short drive or train ride away. Many of Gold Note's suppliers are located within an hour's drive of their Tuscany headquarters. Proximity fosters strong partnerships. "Proximity is the ultimate ad- vantage," Gold Note's Dolfi said. "We make physical objects, not software, so it's crucial for us to be able to speak with our suppliers as frequently as possible."

McIntosh also has local suppliers, at least one within walking distance. As a result, "We get to control the quality better. We can have people at that facility every day," Randall said. "For the most part, we try to do things as local as we can. ... Some of that stuff you just can't do by Zoom."

With a strong local partnership, a supplier can become a collaborator. "We can easily pay [a local supplier] a visit to quickly assess the quality of materials, discuss alternative options, and listen to their feedback," said Gold Note's Dolfi. "Proximity is not just about distance but also language, time, and culture. Working with local suppliers removes so many barriers and enables a whole new level of collaboration."

Local suppliers are often more flexible, more willing to adapt to manufacturer needs. "We use walnut hardwood for the plinth of our turntables and, thanks to our supplier [nearby], we have been recently moving to a new type of coating that's 100% eco-friendly," Dolfi said. "Their feedback and expertise guided us through the whole project, and we were able to quickly test, review, and iterate the process."

Such rapid iteration can be a big advantage, especially in R&D. "Everything's always down to the last minute, especially when you're developing a new product. Then all of a sudden, you find out you've got to make a change," Randall said. He mentioned a specialty manufacturer in New England that "bends over backwards" for them, delivering modified parts, in limited quantities, in as little as three days.

Being close to home is especially an advantage when mistakes are made. Bartolomeo Nasta, export manager for Opera and Unison Research, described a past situation with a faraway supplier that shipped his company defective items. They returned the products, then had to wait for a new batch to be made. The process took four months from the first order confirmation. "If something like that happened in Italy, we could solve it in less than half the time," Nasta wrote in an email. "Most of the parts we use now are made and sourced regionally, from Italy mostly but also from Europe."

Massimiliano Marzi, CEO of Audia Company (Audia Flight, Alare), reported a recent case of local advantage. When they began production on the Audia Flight FLS20 SACD player, they realized they'd sent a supplier incorrect information. "After we verified our error, we sent back the items to make a modification. It was so fast: We received the items with correction in one week."

Gold Note's suppliers have grown with them to become long-term partners. Some of McIntosh's supplier relationships go back more than 40 years, Randall told me. Utilizing local suppliers is ultimately about relationships—relationships that are profitable but that also transcend profits. "I believe suppliers are the true treasure of any company," Marzi said.

Footnote 1: See Re-Tales #16 and Re-Tales #21.

MLP's picture

If you have interest in American manufacturing, travel to Binghamton NY and ask for a tour of the McIntosh factory. The Connecticut Audio Society was hosted last summer and it was a great day. The factory uses modern processes and some state of the art equipment, but some things are done very old-school (transformer winding, for instance). The whole place is fascinating. In the area, in nearby Vestal NY, is Audio Classics, which is totally worth a visit. It is a living museum of all things McIntosh and other old American brands.

Julie Mullins's picture

Thanks for reading and commenting. I've heard good things about touring the McIntosh factory, including from Stereophile writer Tom Fine, who attended a tour there (perhaps the same one you referenced!). I hope to visit there sometime before too long.

Glotz's picture

Thanks for all of these columns.

Julie Mullins's picture

Your supportive words are much appreciated. I enjoy researching and writing these columns and look forward to continuing with more!

Trevor_Bartram's picture

Hi Julie, when you interviewed these companies you could have asked them what they'd do if a customer placed an order for 100,000. My guess is they'd either decline or be on the next plane to China? Their response would have been telling.