Tag Archives: Sourcing

21 Vendor Metrics Your Supplier Scorecard Might be Missing

Giving your vendors feedback through a supplier scorecard is one of the best ways to improve their performance. When you take factors beyond price into consideration, your total cost of ownership decreases, your customers are happier, and you improve relationships along your entire supply chain.

But is your scorecard missing key metrics?

The goal of a supplier scorecard is to measure things that are important to you and your customer. By measuring and keeping score, you can encourage your suppliers to improve.

If you don’t have a supplier scorecard system yet, then check out my guide on Building an Awesome Vendor Scorecard Program in 4 Easy Steps. It includes a free Excel template that you can modify to match exactly what metrics you want to measure.

While some of these metrics might not apply to your business model, there’s definitely a few to add if they measure something important to you and your customers.

  1. Communication

Whether it’s email response time, conversation clarity, or even language skills, bad communication can be a huge drain on a relationship. Ask everyone who interacts with the supplier to rank communication on a ten-point scale and average the scores. Give specific feedback to your supplier on which aspect of communication would most improve the score: Do their emails need to provide more details? Should they look into hiring some translation help? Could they email less often?

  1. Lead Times

Keep a running average of the lead times from order to receipt for each supplier. Compare against other suppliers or a standard you’re working to reach. Be sure not to penalize or reward suppliers based on your choice of shipping method. Overall lead times will of course go down if you start using express shipping. However, if the supplier chooses the shipping method, then including it might be a good idea.

  1. Payment Terms

How long your supplier gives you interest-free loans can be very important, especially when cash is tight. Letting suppliers know what the ideal would be, or the most generous terms you have from another supplier could encourage them to upgrade your credit.

  1. Missed Shipments

Dropping the ball on an order or stocking out can have big consequences to you and your customers. Measuring rare but high-impact failures helps both you and your vendor work on ways to avoid future problems.

  1. Financial Health

Walmart periodically checks in on the Dun & Bradstreet credit scores of its suppliers. A supplier in poor financial health could disrupt your supply chain by entering bankruptcy. Measuring this can sometimes be tricky – but it may justify the extra effort.

  1. Number of Other Customers

Similar to financial health, a diversified customer based is a sign of supplier strength. Walmart hopes its suppliers have other customers besides Walmart. In fact, many big-box retailers are uncomfortable being more than 30% of a supplier’s revenue base. On the flip side, you may not want some suppliers serving other customers.

  1. Ease of Doing Business

Similar to communication, some suppliers are just easier to deal with. Being difficult can take up your team’s precious time, and those suppliers could benefit from knowing that they are a hassle. Of course, you’ll want to be courteous and professional with your feedback, but being open and honest with this metric can go a long way to solving problems between you.

  1. Audit Standards

Many large companies such as Disney and Target have audits that every party in the supply chain must pass. Even if you don’t work with these companies, holding your suppliers to these standards can be a good idea. It usually involves bans on child or forced labor, a maximum of 60-hour workweeks, and basic safety standards. Putting this metric on your scorecard can show your vendors how important those standards are to you.

  1. Cost Reduction Suggestions

The best vendors I’ve worked with have come to me with ideas on how to reduce costs. For example, if we tweaked a part slightly, then the supplier could offer me a lower price. I want to encourage this behavior, so my suppliers get a scorecard bonus when they make a plausible suggestion.
Suggestion Box

  1. Product Suggestions

I constantly worked with my suppliers to come up with great new products my customers wanted. Most of them pushed products at me, but only a handful of vendors presented good ideas. The difference was that those vendors spent time researching end users and gathered insights they could pass along to me. In your scorecard, you can rate the quality of product ideas (can you take what they offer and sell it to your customer right away), or the quantity ideas if they’re shy about presenting options to you.

  1. Relative Price

Price likely factors heavily into your decision, but do your vendors know where they stand compared to others. While you may not want to tell any of your vendors, “you’re our cheapest option,” because they might raise prices, you may want everyone else knowing they’re more expensive. A qualitative gauge similar to, “you are more expensive than average on most products,” can help more expensive suppliers know where they stand and encourage them to quote lower prices in the future.

  1. Specific Quality Metrics

Most vendor scorecards have “Quality” as a category, but do you have specific subcategories? What exactly are you looking for? Here are some possible options:

  • Color
  • Size
  • Error-free
  • Performance
  • Runtime
  • Neatness

Identifying exactly what your customer is considering as she evaluates the product’s quality will help you decide exactly what specific quality metrics to include.

  1. Capacity

When demand is high, does your supplier have the capacity to fill your orders? Letting vendors know where they stand in their ability to fulfill your peak ordering could encourage them to make more investment and increase capacity.

  1. Minimum Order Quantities (MOQs)

On the other side, do vendors make you order more than you really need. If so, let them know. Most of my vendors wouldn’t budge on letting me order less than 2,000 units until I made the ‘A’ score under 500.

  1. Signed and Following Manufacturing Agreement

This is usually a yes-no metric, but it rewards them for abiding by the terms of our agreement. Without including this on the scorecard, some vendors forget you ever signed anything – especially after staff turnover.

  1. Transportation Time and Cost

A freight forwarder really impressed me when they set up a meeting to review a scorecard they built for me – which graded them. It showed the average time it took them to deliver containers and other data points 0—0-[telling me how they were doing. Most interesting was that it showed they weren’t perfect – but that they were trying. Consider tracking similar metrics with logistics providers.

  1. In-stock Percentage

This one may be more unusual, but it’s the key metric of retailers. Essentially, the supplier is responsible for how often its products are in stock for its customer. For me as a supplier to Walmart, it measured how often my products were on shelves. If I saw it was below their target, then it was my responsibility to talk with them and come up with a solution. If your supplier has a similar responsibility to keep you in stock, or they provide products on consignment, then consider letting them know how they’re doing and ask them to step in when it’s below standard.

  1. Your Sell-through, Sales, and Margin on Their Product

Similar to above, if your suppliers have a stake in your sales, then let them know how sales are doing. Be sure not to share anything confidential that may help them go straight to your customer if that’s a possibility.

  1. Inventory Levels

Letting your suppliers know how much of their product you have sitting in your warehouse can help them know when to suggest further orders or delay orders to keep you inventory at target levels.

  1. Reliability of Service or Uptime

If you deal with service providers, especially web-based, then uptime can be a key component to measure and discuss.

  1. After Sales Support and Warranties

When your suppliers ship your order, is that the end of their responsibility? If not, how well do they handle after-sales support? Are they easy to work with and accept returns no questions asked? Or, are they so difficult that you don’t even bring the issues up?

What other metrics do you measure your vendors on? Leave a comment below, and please be sure to check my full guide on how to Build an Awesome Vendor Scorecard Program in 4 Easy Steps. Finally, here’s a quote that always gets me excited about doing more with metrics:

“When performance is measured, performance improves. When performance is measured and reported, the rate of improvement accelerates.”

-Thomas S. Monson

[Dials Image Source, Suggestion Box Image Source]

‘The Johnny Tightlips’ and Two Other Popular Approaches to Supplier Relations

“Before you send that email, there are a few lines I want to take out. We don’t want to share that information with that supplier.”

“Really? But this supplier has done so much for us – shouldn’t they know what’s going on?”

“Not yet. Maybe later – but we don’t want to put any tension on our relationship right now.”

Three Approaches to Supplier Relations

Most companies have a list of key suppliers that you just couldn’t live without. Your dependence on them reminds you of the support you get from best friends, siblings, or even your spouse. But sharing personal information with family and close friends is often easier than sharing business information with your suppliers. What if they take advantage of you? What if they share that information with your competitors? What if they become your competitor?

Navigating your supplier relationships depends a great deal on your business model and the character of the suppliers you work with. Perhaps you could benefit from increased information sharing. Or – perhaps you should hold back a bit more. Here are three approaches to supplier relationships to consider.

The Johnny Tightlips

Johnny Tightlips

Johnny Tightlips is one of my favorite characters from the Simpsons. His catchphrase, “I ain’t sayin’ nothin’,” characterizes the attitude that a surprisingly large number of businesses take. While this arms-length relationship seems cold, it also has served many companies quite well.

The stories of suppliers moving upstream and becoming a direct competitor with their customers are numerous and instructive. For example, Asus was Dell’s supplier when they announced their own brand of personal computers that would compete directly with Dell.

If you’re a fan of poker-like negotiations, then keeping your cards close is highly advisable. Millions of dollars have been won by letting the other party speak while you sit quietly and listen. In fact, using a “pained pause” may be a great tactic to try next time you’re in negotiations. This tactic is described as, “When your negotiating partner makes a too-low offer, sigh, look him or her in the eye and say nothing.” Your silence puts pressure on them to do better, negotiate with themselves, and make a better offer without a word from you. For more on the Pained Pause, check out this Lifehacker Article.

However, relationships with Johnny Tightlips suppliers are only good as good as the benefits they bring. Unless you have most of the power in a supply chain, it’s unlikely that your suppliers will sacrifice much for you. When hard times come, they’ll more likely to switch to your competitors since there’s no loyalty or relationship in place.

Here’s a couple of my favorite Johnny Tightlips appearances:

The Open Book

The Open BookOn the opposite end of the spectrum is the open book approach. Your suppliers provide valuable services to your company – much like your employees. Treating them the same as employees, especially in regard to information, makes a lot of sense.

Being open has a myriad of benefits. Suppliers are able to collaborate with you on new ideas. Because they’re higher up the chain, they bring valuable insights about what efforts they’ve seen previously work or not. They also may have innovative ideas that they’re more likely to share with you because of your relationship with them.

An open policy also can be lifesaving when the road gets bumpy. Suppliers are much more patient when they know what is going on – why payment is delayed or orders are down. Though the rough spots are often the most difficult times for honest communication, that’s when it’s most impactful. A detailed email explaining the situation openly can open the door for more lenient payment terms and with the relationship intact.

Before your open your books completely, here are some important questions to ask:

  • Has your supplier proved their trustworthiness yet?
  • Is there any specific information that poses an unusually high risk if shared?
  • Have sufficient contracts been signed to prevent unauthorized sharing outside the business?
  • If you are a public company, are SEC guidelines – especially insider trading rules – being followed?
  • Have we sufficiently explained the policy to those who interact with our supplier?
  • Are your instincts prompting you to hold something back? Why?

Despite the risks, opening up communication often yields impactful results.

The Game of Kingdoms

The Game of KingdomsA middle ground is a philosophy I call the game of kingdoms approach. Imagine your company as a kingdom – complete with a castle and city walls. Your suppliers and customers are also kingdoms. Some are bigger than you, and some smaller. Just as a king engages with other kingdoms, you work with other companies.

The much larger kingdoms – the ones you’d like to have on your side if a war starts – merit investment in open communication. You want to build those ties in diplomatic ways by sending emissaries and fortifying trade routes. The smaller kingdoms may require less work. Taking a diplomatic game approach and envisioning various castles often helps me make better decisions on supplier relations.

Besides, “inter-kingdom diplomacy” just sounds more fun than “supplier relationship management.”

What’s Your Weapon of Choice?

Which approach do you currently use with your suppliers? How might you benefit from adjusting your communication style?

Share your thoughts in a comment, and be sure to check out our recent podcast where we talk with the former VP of Operations at Skullcandy about vendor relationships and metrics.

[Image Sources: Johnny Tightlips (modified) | Open Book | Castle]

Startups, Sourcing, and Sustainability with Mark Dwight of Rickshaw Bagworks – Interview Part 2 of 2

In a beautiful San Francisco neighborhood stands a brick warehouse containing something unusual and inspiring – a startup that uses lean manufacturing and sustainable business principals to make products in the US. Relying on local vendors, an honest culture, and talented people, Rickshaw Bagworks produces bags that people love.

Mark Dwight

Below is the second half of the transcript from our phone conversation. The first half is available here.

Q: From your experience starting your own business – how was that to take that step? What would you say to budding entrepreneurs that want to make that same jump?

Well, the first part was that “I got pushed.” I got fired from Timbukt2, and that’s ok. It was a new group of investors. They bought the company for a lot of money and they weren’t there to have a party. They were there to build it even bigger and sell it themselves. They looked at me and said, “Look, you’re a really creative guy. You did a great job of growing this from 4 million dollars in sales to 20 million dollars in sales, but we need to make it a 100 million dollar company and you have no experience doing that. I was like, “You’re right.” So they said, “Well we’re going to go find a 100 million dollar man.” So I said, “Ok fine. You know, what do I have to say about that? You own the company, not me.”

So I left there and as I was thinking about what I was going to do next, I thought, “Well I could go buy another little, small company.” But that’s usually hit or miss. I had been very fortunate with Timbukt2. It was struggling, but it had a great brand and a bigger-than-life image. It was ready for someone to take it to that next level, and I was fortunate to be able to do that. Whether I could have taken it to that next level of 100 million dollars, I don’t know. Frankly, in retrospect, I’m not so sure I would have wanted to.

Rickshaw Bag in ProductionI looked around a little bit and I didn’t find anything that was obvious that I might want to buy. One day a friend of mine said, “Mark, you’re spending a whole lot of time avoiding the bag business.” I had been hesitant because I thought, “If I run off and start a bag business, everyone’s going to say, ‘that’s just Mark. He’s mad about Timbuk2, so he’s going to go start his own bag company out of spite.'” I didn’t want people to think that at all. In fact, I had fallen in love with bags and the bag business because bags are the most personal of personal accessories. People love their bags. At Timbuk2, we’d have people come in with a ten-year-old bag – it looked like trash – and I’d wonder, “Dude, how can you walk around with that on your back?” and they’d say, “I would never give up this bag.” These people would say, “I fell off my motorcycle and it saved my life,” or they’d say, “This stain here is where my wife, when I proposed to her in a French cafe, she spilled her wine. And that stain right there, I don’t ever want to lose that.” This made me think, “Wow, bags are interesting. Every bag tells a story.” I had learned how to make them, and I love making stuff. So I said, “Ok, I love bags, I love making bags, I know how to make bags.” I knew that Timbuk2’s custom business was profitable. Some of the other stuff we did was less profitable, but the custom part, the online customization, was really profitable. “Well, ok, I’m going to give this a try.”

Then I had that idea for a chassis strategy for custom computer bags. I thought, “Hey, I’ve got some innovative ideas, I love bags.” I had a little money from when I left Timbuk2. I had the grubstake to start, so I decided to do it. A friend of mine said, “You’re spending all of that time avoiding the bag business, why don’t you just go do it? You love it. Go do it. Don’t worry about what other people think.” We all spend a lot of time thinking about what other people think, but finally, I thought, “You’re right. I should just do it.” And I did. That was 6 1/2 years ago. It’s been a long slog; be careful what you wish for.

Rickshaw Bagworks Staff

Q: I watched a Stanford video that you did, and I liked what you said about not trying for a hockey stick growth pattern. You just want a good sustainable business that has modest growth. You go to work each day and you’re happy.

Yeah, you know, I’m not here to be the king of the bag business. I tell people, “I’m not here to make as many bags as possible.” Let’s face it, if you work for investors, your job is to make as much stuff and sell as much of that stuff as possible. That’s how investors make money, not my company. I’m not grading myself by how many bags I sell. I want to sell as many bags as necessary, not as many bags as possible, as many bags as necessary to run the kind of business that I want to run. Of course, I’m competitive like the next guy, but I don’t need to beat Timbuk2 at their game or feel like I’m competing with JanSport. I want my company to be respected for what it does, and I want it to be sustainable financially.

Sustainability starts at the bottom line. If you’re not profitable, it doesn’t matter what else you got or stories to tell because you’re not going to be around long. Hence, I want to run a financially sustainable business. I love working with my team. I love being my own factory. I love everything about it. Do we want to be a little bigger? Sure – because we’re just on the cusp of profitability right now. It’s been almost seven years, a long time. We’ll all be really proud of ourselves when we get to profitability.

Rickshaw Factory Floor

I think the company could be two or three times bigger than it is today and still be a company that I feel is an authentic, make-what-we-sell kind of thing without help from outsourcing. Frankly, I’ve played that game, and I’m not that interested in it. At some point, you have to decide what you really like to do. I love to make my own products. It’s not me sitting down at a sewing machine. I love my company making what it sells in its own factory and the kind of control, and not just control but satisfaction, that comes from that. It’s what makes me tick. That’s just me, and it’s nothing against people who design things and go have other people make them. That’s great. You’re a great designer; you don’t have to be a great manufacturer. I’ve tried to become both. Actually, that worked backwards.

I said I wanted to be a great manufacturer, and then I taught myself how to design and do the other parts. I tell people, “I’m here to make a living, not a killing.” It’s just bag. Yes, we’re creating a brand, like Timbuk2.

Timbuk2 had been around for 13 years when I joined them. We basically took that brand and blew it up. “Let’s go to China and make a $99 computer bag – we will sell tons of them.” And that’s exactly what we did. I said, “This company’s making expensive bags in San Francisco. We’ve got a great brand. I know how to design computer bags. Let’s do a $99 computer bag, make it in China, and exploit the Timbuk2 brand and heritage.” That’s what we did, and we sold tens of thousands of those bags. It was the bag that turned around the company. But, as I look back on it, I think, “Well, that’s one way to do it.” But it feels a little like you’re prostituting the brand.

I think what came with that strategy was a level of exposure that sort of betrayed the roots of the company and all the of the sudden people started saying, “Oh, you guys don’t make bags in San Francisco anymore.”

“Well, no, that’s not true at all; we still make our custom messenger bags here”

“Oh, but I just see all the stuff you make in China, so to me, you’re just a China-made company”

“No, that’s not it at all.”

With Rickshaw, I’m trying to be a little more true to that, even though I started out in China. Now I’m of the attitude of, “The more I can make here, the better.” We learn more every day. Part of it is training ourselves to make bags.

The reason China is so great at bags is because they have expertise, equipment, and capacity. The supply chain is all right there. You can sit in your factory there and say, “I want to see the buckle guy.”

“Ok, well let’s give him a call. He’ll be here at 2 o’clock”

“I want to see the webbing guy”

“Ok, we’ll drive over to his place.”

Everyone is right there. It’s like making cars in Detroit with the way it used to be when everyone was a local vendor. You could go over to the vendor, work stuff out, and go on with your life. Now, you say, “Ok, I have to book a flight to China – how many days do I loose when I go?” and all those headaches. Either you do it remotely or you plan these epic trips over there. It’s very costly, so what we try to do is build our own local supply chain.

Rickshaw Bicycle DeliveryQ: There’s definitely something to be said for having the local vendors right there. And I’ve heard that you sometimes visit them on bikes?

Yes, as a matter of fact I’m standing on the curb right now because I was delivering a box of canvas tote bags that we just made for Whole Foods Markets. A couple of their stores here in town are carrying some canvas bags that we make. I get a kick out of delivering by cargo bike occasionally. It gets me a little exercise.

Q: When you started on your own 8 years ago, knowing what you know now, would you do it again?

Oh, absolutely. I love every day of it. It’s really fantastic. Running your own business has its own headaches, but working for other people has its headaches too. I like the ones I give myself better than the ones others give me.

I’m very fortunate that I’ve had the resources to get as far as I have. That’s one thing I do advise entrepreneurs when they go into their own venture. I say, “Look, I guarantee you it’s going to take more time, more effort, and more money than your business plan says – even if you double everything. It just does. And I guarantee you that 3-5 years from now your business will not look the same as your business looks today.”

For example, Huckberry is a company that curates products for companies like us. They just opened a pop-up store nearby; they’re based in San Francisco. I was just talking to the two founders, and they said, “You know what Mark, we were just thinking back about when we met you three years ago and the advice you gave us.” They said, “We distinctly remember you saying ‘so, how long do you guys think you’re going to be in this business’ and we remember you saying ‘better give it 3-5 years.'” Then they said, “Here we are, 3 years later.”

I said, “Well you’re fighting a good fight if you’re here three years later.” I’ve been at it for almost seven years. It takes more time, effort, and money than you ever think. But, if you’re enjoying it, it’s ok. And for me, my business at Rickshaw is not only my occupation, it’s my hobby, my life, and my life style. I quite enjoy it. I don’t think about the work-life balance. I have four teenage kids, and I want to spend time with my kids, my girlfriend, and people in my family. But, they all know, “This is what Dad does. It’s a big part of his life.” It’s just what I live and breathe. I try not to let it consume, but it’s also what keeps me interested and vital. When I’m out in the world, I’m thinking about bags.

Q: I know you founded a non-profit supporting companies making products in San Francisco – how did you start that?

I founded the organization called SFMade. I conceived of the idea while I was at Timbuk2, and actually, it’s kind of a funny story.

When I started making this computer bag over in China, the San Francisco Chronicle ran an article about us in the local newspaper. Basically, the gist of the article was that we finally had faced economic reality, and we were manufacturing in China like everybody else. We were facing the fact that it’s too expensive to make stuff in San Francisco. And in the that article, they showed a fairly large black and white photo of a sewer, a seamstress, who was a Chinese woman. If you read the headline and saw that picture, you would had said, “Oh, well of course, there’s one of their sewers over in China.” Well, the Chinese community in San Francisco is the backbone of the sewing community. That Chinese sewer was in my factory at Timbuk2 Headquarters in San Francisco. Now, it said so in the caption, but you read headlines and you see pictures – the same way you read a comic book. So that really irritated me. So I started thinking, “We just don’t get enough credit for what we are doing here in San Francisco.”

SFMadeI was in Silicon Valley working in high tech when Intel launched their famous campaign, “Intel Inside.” Here’s a company that is behind the scenes, no one really knows them, and they decide, “You know what, we’re going to convince people that if they’re going to buy their own computer, then they should demand that it should have an Intel chip. People don’t even know what a chip or microprocessor is, but we’re going to tell them, if there’s Intel inside, it’s going to work the best.” And they went to great lengths to make it seem like “Oh, your Microsoft Word isn’t going to run properly if it’s not on an Intel chip,” or “the operating system’s not going to work the same way.”  I thought that was brilliant.

I thought, “Intel can do it with technology, why can’t we do it with Geography?” The Champagne region did it. They protect the word champagne with vigilance. This notion in wine is very common. San Francisco is a special place. People think of us differently, “Whack jobs out on the west coast; super-progressive, liberal city; summer of love; the gold rush.” All those things that happened here in San Francisco are part of our culture. We have a very special place, plus we’re beautiful geographically. We should use San Francisco as an ingredient brand. So I conceived the idea of geographic ingredient branding, just like Intel did technology ingredient branding. I came up with this little logo for SFMade, and we started using the SFMade logo on our custom “Made in San Francisco” bag at Timbuk2.

When I left Timbuk2, I negotiated with the investors, “You know, this SFMade thing, it’s really for San Francisco. It’s not just Timbuk2’s thing.” I invented it, and they let me take it with me. They actually stopped using it after I left.

So when I started Rickshaw, I started using the SFMade label. Then I had the opportunity to launch the organization as a nonprofit. The executive director, Kate Sofis has done all the hard work to make it what it is now. Today, it’s 500 companies, in San Francisco, who are either making things themselves or having local subcontractors make things for them. Being an SFMade product means it has to be made by a San Francisco-based company here in San Francisco.

Q: A deeper question for you, what advice or life lessons have guided and motivated you personally and professionally?

My father was a successful Silicon Valley entrepreneur. He founded a company, the first commercial laser business called Spectra-Physics back in 1962, when I was 2 years old. So I grew up around an entrepreneurial environment. Business was the topic of conversation.

One thing that my father has always stressed is integrity – personal integrity and business integrity. He’s always made it clear, “There is no mistake so heinous that you can’t tell the truth. It’s the not telling the truth that makes minor mistakes major mistakes.” I tell that to my company, because you know, you get scared. You make a mistake and you get scared, especially if you’re on the job. “It’s the boss’s money.” or whatever fear you have. I tell my team, “There is nothing you can do here that you can’t tell the truth about, because otherwise it just gets out of control—a small problem becomes a huge problem.” We haven’t had a problem that was a mortal wound. We’ve had problems, and we’ve solved them. If we catch them early, they do less damage. I try to impress upon everyone that your personal integrity is your foundation. It’s your bedrock. Don’t do anything to compromise that, no matter what. Sometimes the truth hurts, but I tell people, “The truth hurts for a day, a lie can last forever.”

Q: Here’s a fun question for you. If our readers are looking for a nice new bag, which one of yours is your favorite and which would you tell them to check out?

What’s my favorite bag? Well, my favorite bag is one you can’t buy yet. I’m usually wearing a prototype. But as computer bags go, I love our Commuter bag. It’s my third or fourth bag design for computers and I think it incorporates all I’ve learned over the last 15 or so years of designing.

I like our messenger bag a lot, and I wear our Zero Messenger bag a lot. It’s nice and simple and I can just throw stuff in it, sling it over my back, and I’m off and going.

We have a new backpack coming out. We’re just finishing up a run of 2,000 backpacks for Google. We designed the product just for them. We’re going to be launching that on our website soon, so that will maybe be my new favorite, but for now it’s the Commuter and the Zero.

Thanks again to Mark Dwight for sharing his thoughts. Leave your thoughts in a comment below.

Startups, Sourcing, and Sustainability with Mark Dwight of Rickshaw Bagworks – Interview Part 1 of 2

In a beautiful San Francisco neighborhood stands a brick warehouse containing something unusual and inspiring – a startup that uses lean manufacturing and sustainable business principals to make products in the US. Relying on local vendors, an honest culture, and talented people, Rickshaw Bagworks produces bags that people love.

Mark Dwight

I recently had the great privilege of interviewing Mark Dwight, Founder and CEO of Rickshaw. Mark shared his experiences and the lessons he’s learned with lean manufacturing, domestic sourcing, sustainability, and much more.

Below is the first half of the transcript from our phone conversation. I learned quite a few things that I later shared with my team. I hope to use his experiences as trail markers in forging my company’s own growing supply chain.

Q: Mark, can you tell me your background and how you started manufacturing bags in California?

I founded Rickshaw Bagworks 6 ½ years ago after running another bag company here in San Francisco called Timbuk2. I became involved with Timbuk2 in 2002. They were a small company on the verge of bankruptcy and had been around for 13 years. They had a great reputation, great brand, but were struggling a little bit. So I became the CEO and an investor in the company. We were very fortunate to get it turned around, and then we sold it three years later to a private equity firm. Eight months after that, I got fired. So, I said, “Well, I’ll go start my own company.”

Before all of this, I had spent 20 years in Silicon Valley, so I’m a high tech guy. I also have spent some time in manufacturing. I started out as a manufacturing engineer in the semiconductor equipment business, so I’m a manufacturing man at heart.

Q: I know you do a lot with lean manufacturing and one-piece flow. Where did you pick that up? How does that make Rickshaw different?

I picked up one-piece flow at Timbuk2. The founder of Timbuk2, Rob Honeycutt, is a real student of lean manufacturing. He had implemented those techniques at Timbuk2 for their custom messenger bags. They get orders in from their website, and they’re all individual orders. The practice of single-piece flow is something I inherited from Timbuk2, and I liked it, so I continued it at Rickshaw.

I think what makes Rickshaw different is that we make our own product in our own factory here in the states. Now, I’m no stranger to outsourcing. I don’t have any problem with it. I’ve done plenty of work in China myself, and I still buy a few things from there. However, I’ve really focused on trying to do it in my own factory – not as a protest, but as a celebration that we can still do it.

Q: I imagine there’s some kind of learning and experience from when you do it yourself that you miss out on when you outsource.

Oh, absolutely. It’s one thing to go into a room in a factory, say in China, and sit down with a product person and work through your prototype. You can show up with a really cool tech pack or just a sketch – which is what I do – and then you have a prototype made by the sample maker. Then you tweak it until finally, you get to a product your happy with. The rest is behind the scenes – they make the patterns, they sew the product. You never know what’s going on in the factory, and there’s a lot of implications to that. For example, you don’t know where the difficulty points are. When I’m working in my own factory, my people come and tell me, “Hey, this is really hard to do.” That’s either a design problem or a process problem. It’s not their fault – it’s the design or the process. Then we can say, “Well, do we need a different machine? What’s really going on here?” You never know that when someone else is making your product and it all shows up in is your cost. If there’s lots of rework, that’s in your cost. Then, if you go to your factory and say, “You need to sell this to us cheaper,” the following conversation takes place:

“Do you know how much rework goes into this?! No we can’t make it cheaper, this design is a disaster.”

“Why didn’t someone tell me?”

“Well, we’re just making what you told us to make. You didn’t tell us how to make it, you just told us to make it.”

I’ve learned that outsourcing often brings unintended consequences. For example, remember the debacle, years ago, with Mattel toys, when they imported toys with lead-tainted paint. Everyone was freaking out, asking “how could that happen?! Mattel is an upstanding company. Their factories have been making them for years without this problem, and all of the sudden, lead-tainted paint.” Well, it came out that the way they operated their supply chain management was that every time they placed a new order they took a couple percent off the price. Mattel would say, “Here’s an order, now you will make them cheaper.” At some point the factory said, “Hmm, we’ve taken out cost everywhere we conceivably can. Hey, go find some cheaper paint.” And so the purchasing department dutifully marches off and returns, “We found some cheaper paint. Let’s use this.”

“Well, why was it cheaper?”

“Oh, well, it’s a little lower quality than what we normally use.”

Mattel’s operations team was so removed from the actual process of making their products – they probably had never even been in that factory before. When you’re not intimate with your own supply chain, problems happen. Now I’m not saying Mattel should open its own factories – that’s not practical right now – but they do need to be intimate with the factories that make their products. Ultimately, nobody looks through them to the supplier to say it’s the supplier’s problem. They look at Mattel and say, “It’s your product, your brand, your fault.”

So even when I’ve subcontracted, I’ve always spent lots of time with my factories. For one, it’s a partnership. I’m not just shopping for the lowest prices. I’m looking for someone to make my product the way I want it made – someone I trust. Someone that when I’m not there, I trust them; and when I go there, I’m a partner. I think a lot of people just say, “Let’s outsource. That’s cheap. Let’s just go have someone else do it.” But there should be a lot more that goes on to make that happen. They have to be good factories, or your product suffers.


Q: For those of us who are interested in doing more domestic sourcing, what’s been your experience and how have you been able to make that transition?

To answer that, let me back up a bit to the beginning of Rickshaw. I came up with a product design concept that is similar to how Ford builds cars. You design a platform, or chassis, and you invest in that chassis because you expect to use that chassis for a decade. On that chassis, you expect to build multiple models. In the case of General Motors, you can have multiple brands sharing the same chassis. So my thought was, “For a complicated computer bag, what if I develop the chassis, and I have that made over in China. Then, I bring it over in pieces and do the final assembly here. I’ll put on some colorful elements to give it its personality. “The idea was I’m going to outsource 90% of the labor and complicated stuff, and I’m going to insource 90% of the personality – I’m going to do all the customization here. That is a Harvard Business Review manufacturing strategy. Great story for an ops guy, an ops geek like me.

I thought, “Wow, that makes total sense,” and the idea had lots of advantages. I pay 7.8% duty on subassemblies instead of the 17.5% that I have to pay on finished bags. The subassemblies nest in a way that bags don’t, so I get a 5-to-1 shipping volume efficiency. The chassis are all black, and there’s only two sizes, so I effectually have zero inventory risk. Operationally, it’s great. That’s how I got into the custom bag business. I designed a custom chassis, started importing them, and then I was custom making these computer bags and people really liked them.

Well, as time went on, we had to buy sewing machines to do the customization part. One day, we were sitting around and said, “Well hey, let’s make a messenger bag.” So we had an idea for a messenger bag that we could make in our own factory here. We started making it, and it became really popular. As we met more and more people, and said, “Here’s our computer bag, we make parts of it in China and do the final assembly here. And here’s our messenger bag, we make this whole thing here.”

“Oh wow, I want to know more about that messenger bag.”

People were really jazzed about that fact that we were making something from scratch in our own factory. As time went on, that really became our narrative. People really liked that story. And when we said, “Oh, we make this part in China.” They’d say,

“Oh, well that’s too bad. You should make that here”

And I thought, “Yeah, your right, I should.”

We’ve had to adopt a design philosophy that is sort of counter to the way bags are designed, or the evolution of bag design today. With cheap labor, designers get a little lazy. When they need to change their design, switch up their design season to season, they just add another pocket, zipper, or feature because labor’s cheap. It’s alright; it’s not a lot of material, just throw a little more labor at it. After years and years of doing that, you get fabulously complicated bags. For example, if you go down to your local outdoor supply store and look at a new camping backpack, they’re like a tour de force with so many pockets, zippers, and features. When you see them, you’re like “Wow, this is fantastic.” Now think about all the labor that goes into that. At $0.50 an hour, that’s no big deal. But at $20 an hour, big deal.

If we were going to make our products in our own factory here in San Francisco at an effective burden rate of $20 per hour, we had to rethink the whole design process. We design for simplicity, which in operation terms means we design to drive the labor out. We don’t want a bunch of labor; it’s too expensive. So we follow a minimalist philosophy of design, which in designer speak means we make elegantly simple products. We have gone the opposite direction of other bag companies.

The interesting phenomenon, though, is what happens when people who have been buying bags with lots of features for years buy a Rickshaw bag. Because I know Rickshaw and Timbuk2 intimately, people will come to me and say, “I’ve been wearing Tumbuk2 bags for 10 years, but oh man, I just love my Rickshaw bag. It’s the best bag I’ve ever had.”

Then I say, “If you and I sat down the Timbuk2 bag and the Rickshaw bag side by side I could show you the Timbuk2 bag has 10 times the features that the Rickshaw bag has.” But the people don’t need them.

As a matter of a fact, people say, “Yeah, it has too many pockets. I lose things in it.” So we’ve found that taking things away doesn’t necessarily mean our product is less. It just makes it different, and differentiation is important. We’ve differentiated ourselves by making elegantly simple products by focusing on customization. If you go to REI, you’re going to see everything’s in five different colors. If you come to us, you can have any color you want. We’ve really honed in on being the maker of custom bags.


Q: Piggybacking on that, a major, emerging trend is mass customization, which you’re set up to do and thrive on. What’s been your experience with mass customization? What challenges have you faced as you offer a mass customization model?

Customization at Rickshaw BagworksThere’s no question that customization costs you in terms of time and complexity. It just does. I don’t care how much anyone tells you how brilliant his or her mass customization program is. When our factory’s making an order of 2000 for a corporate customer, and they’re all the same, we are rockin’. We’re working at probably 1.5 to 2 times the speed that day than if every single one of those was a unique order off our website. It just is. Just to think, “Ok, the lining is this color, the inside is this color, the outside is this color, the label is this color,” those split-second decisions cost you time. They just do. There’s a level of complexity in the factory to do that. Nevertheless, we’ve set up our factory to do that.

We know customization takes a little extra time, so we have to factor that into our cost mode, but we accept that. We don’t complain about it, because that’s the business we want to run. We’re not the only guys that do it, there’s a few other people that do it. However, we do it on a scale that is larger than many. I’m not one guy sitting in my garage saying, “Oh, I got another custom bag order,” and then sending five emails to and from my customer telling me what to make. No, we built the customizer online.


Honestly, it’s not really customization, it’s personalization. You can’t walk in my door and say, “I have an idea for a bag. It has to have a pocket here and a pocket there.”

No, we say, “Here’s our design, choose your colors, and maybe choose a couple features,” but they’re modular. In our design process, we’ve designed for modularity; we designed for customization. We know what’s easy to customize and what’s not. If it’s not easy to customize, then we don’t make it an option because it will be too complicated for us. We look for some things that are easy to do, and then we try to make those signature design elements. Our binding, for example, is made out of the same fabric that we make the body of the bag, called self-binding. We have 50 colors of binding, because we have 50 colors of fabric. Not everyone offers that kind of thing. That color binding has become a signature of our product. In my business, you look for the smallest differentiators you can. We’re not rocket scientists here, we’re just making bags.

Q: I want to touch on sustainability, a hallmark of your company. How did you make sustainability a core value? For others that want to incorporate more sustainability principals into their business, what advice would you give?

I wouldn’t call myself a social responsibility entrepreneur or sustainability entrepreneur, because on one level, sustainability means “don’t waste stuff”. That stuff is material, and that material is stuff I paid for. So if it’s ending up in the garbage, that’s money out the door. The way that translates into a business philosophy is designing to minimize waste. Our zero messenger bag’s design criteria was to create as little waste as possible in the factory. The result of that is a bag made from four rectangles of fabric. Those rectangles can be sized to optimize material use off the roll, which means we don’t waste very much fabric when we make those bags. It’s a very simple idea, and since it wasn’t my idea, I can call it brilliant. It’s actually an idea that Rob Honeycutt, the founder of Timbuk2, came up with. He’s a friend of mine, and when I started my factory, I asked him to help buy my machines. One day he said, “I have this idea for this bag,” and I said, “Great, let’s make it,” and that became our zero messenger bag.

Some of these business principals are just my own personal values. I don’t like to waste things. I like to operate my business in a transparent way with great integrity. Those are personal values, and because it’s my company, those values have translated into the company’s brand value. Frankly, it’s just a good way to live: “Don’t waste things. Tell the truth. Be transparent.” It’s an easier way to live, actually.

Q: In terms of focusing on sustainability, you’re designing your product not just to take out labor, but also to take out waste.

Exactly, we’re designing our product to minimize waste. Minimize waste of material, minimize waste of labor. That becomes a philosophy of our design. There’s a design philosophy called minimalism – and so we’ve embraced minimalism as both a design philosophy and an operational philosophy. When you simplify, you make things faster. You make things more frugally, and you’re more flexible. I talk about the “three fs” of sustainable design – form, function, and footprint – but being fast, frugal and flexible are the “three fs” of sustainable operations.

zero-tagsThe second half of the interview will be posted next Monday. Share your thoughts in a comment below.