Article originally posted on www.toybook.com , May 14, 2013
By Howard N. Aronson, Managing Partner, Lackenbach Siegel LLP
Like the proverbial child who runs away from home only to return before nightfall, an American toymaker is bringing most of its manufacturing back to the U.S.—after more than a decade of outsourcing in Asia. The decision of K’NEX Brands, a family-owned maker of plastic building toys, to boost manufacturing at The Rodon Group, its Hatfield, Pa. plant, is only one example of a major trend. Persuasive factors leading to the ultimate decision included quality control, overall costs, timeliness of deliveries, and intellectual property issues. Many are following the lead of K’NEX and rediscovering that home sweet home is the best place to make and distribute products after all.
Manufacturing in the U.S. created many advantages for K’NEX:
• Greater ability to react to shifts in consumer demands for toys because it’s much quicker and easier to retool–thus creating additional sales;
• Delivery times are quicker–as are changes in delivery schedules, for example, to take advantage of unexpected increases in sales at some stores;
• There’s more control over quality–including avoiding toy safety product recalls;
• There’s more control over materials–again, especially important where safety is an issue, as it is with many toys;
• Overseas labor costs are increasing, whereas using robotics in its U.S. plant is boosting productivity–thus lowering per unit labor costs;
• Transportation costs are rising;
• Time zone differences make communication between manufacturers and suppliers difficult.
Rebecca Bagley in Forbes succinctly highlights and adds to such factors, “the almost incalculable potential for lost intellectual property offshore.” Thus K’NEX joins many companies of late returning manufacturing to the U.S. for a host of reasons, including notably better IP protection in the U.S.
K’NEX has always manufactured their bricks, rods, and connectors, the basics of all K’NEX building sets, in the U.S., but had to make adjustments to its product to facilitate the return of the majority of manufacturing to its U.S. plant. For example, the Wall Street Journal reports, the company redesigned its roller coaster tracks—which used to be held together by manually inserted metal pins—to be all-plastic with pressure-fit connecting means. The cost of having American workers utilize metal pins was prohibitive, so K’NEX redesigned the tracks so that they could simply be snapped together. What is even more innovative, K’NEX redesigned toy sets’ tiny hubcaps—which used to be inserted by hand by overseas workers—for K’NEX’s young customers themselves to snap together along with the rest of the toy. In a similar move, K’NEX changed the coating—a shiny metallic finish—on a toy car that’s part of its roller coaster set because applying the coating to the cars is too “expensive [and]…dirty” for American manufacturing. They produced a new design without the coating—and may instead instruct the consumer to place a shiny decal on the toy cars as part of the set.
K’NEX sister company, The Rodon Group, started out in the 1950s as a maker of extruded plastic items, such as protective caps for chair legs, and today is still a high volume small plastic parts manufacturer that claims to be “cheaper than China.” In the early 1990’s the founder of the Rodon Group’s son, Joel, invented K’NEX which began as just rods and connectors manufactured at the family’s plant. As K’NEX grew and incorporated motors, cars and roller coaster track into its line it was forced to move much of its toy production to Asia, leaving its Pennsylvania plant to turn out other products. But K’NEX started reshoring after the 2008 recession, as a way to keep the Pennsylvania facilities open. Today, K’NEX makes 95 percent of its product in America. K’NEX still imports small battery-powered motors for its toys from China because it hasn’t found a competitive U.S. Supplier. Because its move back home demonstrated the competitive edge K’NEX had developed in its automated plant, they also undertook production and sales of TINKERTOY as a Hasbro licensee. To make U.S. production feasible, wooden parts of TINKERTOY were redesigned in plastic. The company also makes Lincoln Logs under license from Hasbro—but because the market will not accept plastic toy log cabins, (what would Abe Lincoln say?) the Lincoln Logs are still made off-shore. In the near future, K’NEX hopes to find a U.S. furniture company to produce the tiny logs in America. K’NEX purchased a $30,000 robot to speed and simplify product packaging. For the future, K’NEX expects more sophisticated robots to perform assembly work, enabling the company to move more production back to the U.S.
K’NEX joins good company returning manufacturing to the U.S. WHAM-O reported bringing back 50 percent of its Frisbee production to California and Michigan. And CharlieDog and Friends, a Rye, N.Y.-based toy company, announced efforts to reshore manufacturing of their plush toys in America. And like their counterparts in other industries, toy companies are learning that if their manufacturing is located in the U.S.—because of factors such as labor, delivery, transportation, and quality control issues—they can also achieve better protection of trade secrets and related IP at home.
Howard N. Aronson has for the past 30 years provided legal counsel to toy industry companies. He is the managing partner of Lackenbach Siegel LLP, an intellectual property law firm recognized for its nine decades of handling toy company issues. Grateful acknowledgement is extended to Eileen DeVries, Counsel at Lackenbach Siegel. Contact Howard at HAronson@LSLLP.com or 914-723-4300.