A Different Chinese Joint Venture

May 14, 2007
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WYOMING — In the coming weeks National Nail Corp. will implement a different type of sourcing partnership with its largest Asian supplier — one that has the Chinese manufacturer investing in its U.S. counterpart.

For the better part of this decade, Shangdong Oriental Cherry Hardware Group Ltd. has manufactured most of the nails, screws, staples and other fasteners sold under National Nail's ProFit brand. Like its country as a whole, Oriental Cherry, as it is commonly known, is in the midst of a massive growth campaign. By 2009, the 1,800-employee fastener maker intends to double its total production capacity to 250,000 metric tons, with hopes of becoming the world's largest fastener company.

"Our objectives are similar," said W. Scott Baker, National Nail president and CEO. "We both want to gain market share."

Over the past quarter century, National Nail has become much more than a nail company. In addition to its core line of fastener products, the Wyoming-based firm designs, makes and distributes composite decking and rail systems, pneumatic tools, metal flashing, roof felt, storm doors and windows, adhesives, caulk and other construction products. To a large degree, its namesake product has long been a commodity, forcing it to Asian suppliers when domestic production became uncompetitive in the late 1990s.

After several hard lessons, National Nail developed a lasting relationship with Oriental Cherry and its founder, Wu Xianliang (Wu is his family name).

"We had a real comfort level with Wu that we hadn't found with anyone else," said Roger Bruins, National Nail chairman. "He is a solid, ethical guy. We see eye-to-eye on a lot of issues."

Even with a trustworthy supplier, National Nail has endured some difficulties in its global sourcing program. Until 1997, when most of its manufacturing was done stateside, the company enjoyed lead times of 30 days or less. "If you messed up, you could fix yourself in two weeks," Baker recalled. "What a wonderful world that was. The way we order today, I'm guessing what the market will be 90 to 120 days away, and normally we guess wrong."

When the housing market collapsed last year, the company had four months of product on the water in addition to the surplus inventory already in the distribution channel. The stoppage impacted both National Nail, with the cost of the additional inventory, and Oriental Cherry, which has fixed labor costs from the factory's onsite dormitories.

To address this issue, National Nail and Oriental Cherry will integrate their supply chains. The Chinese firm will begin producing product for stock — which it has never done before — specifically for National Nail. In turn, it will have access to National Nail's online replenishment and forecasting systems. By removing the need for concrete purchase orders before beginning production, lead times can be cut from 90 days to 30.

National Nail will post Chris Baker, director of business technology, at the Oriental Cherry facility in China. Oriental Cherry will post a corresponding executive in Wyoming, where the company will house up to $1.5 million of its own inventory in the National Nail facility.

"That gives us the flexibility to respond to hurricanes, hail storms and other catastrophes that are difficult to forecast," Scott Baker said.

National Nail will also provide advanced packaging equipment to Oriental Cherry. Currently, all of the company's packaging is done by hand. This will allow the Chinese firm to better service National Nail, as well as its other customers, the majority of which are not present in the U.S. — 40 percent of its overall sales are within China, a unique model among Asian manufacturers.

"We all know that a lot of the manufacturing capacity in China is aimed toward export," said Wu, translated by National Nail vice president of global sourcing Shimon Liang. "We've been able to develop a network within China."

As the partnership moves forward, Wu will make a significant investment in National Nail. The Chinese government has given him a $2 million grant to purchase physical assets in the U.S. "We're seeking opportunity," he said, "especially where we can go directly to market."

Oriental Cherry and National Nail will partner on a new distribution facility at a still underdetermined location. This will not be in West Michigan, and likely not near any existing National Nail facilities. The inventory will be owned by Oriental Cherry; sales and distribution will be led by National Nail.

The Oriental Cherry deal, which will be finalized in China next week, is another victory in what has already been an exciting year for National Nail. On March 1, it launched the Stinger Cap Hammer, the latest in a series of tools using cap nails and staples, which the company invented in the 1990s.

Pneumatic cap fasteners are nails and staples driven with a one-inch plastic cap atop the fastener head. These are particularly useful for insulation, roofing, or any application that requires a nail or staple to hold down a large piece of material. Already a top seller, the Stinger will soon be available in Menard's and Home Depot stores. In a deal estimated to be worth $12 million for the company, DuPont may require cap fasteners as the application method of its home-wrap insulation for its 10-year moisture-proof guarantee.

The limitations of Asian sourcing are doubly apparent in the Stinger, as sales of the $50 handheld cap driver have been so brisk that National Nail has to air freight stock replenishment.

"We've had to fly it in, it's that hot of a product," said Bruins, the company chairman. "It's great that we have to do that, but it sure is expensive."    

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