Moving your Product Manufacturing to Mexico – BRH2 Plastics – Ryan Fernandez EP77

https://open.spotify.com/episode/3p3QrZN40pEovKQo38M7AL

Quotes:

“The art of delegation is vital and the art of me having people feel fantastic inside the organization.”– Ryan [38:59]

“It’s finding out how to partner with people who have much better rates and spreading the profits, that’s an awesome strategy to use.”– Ryan [32:32]

“For me in business, the art of being successful is being able to move people.”– Ryan [15:15]

All You Need to Know About Manufacturing in Mexico and Its Logistics

Think about all the manufacturing logistics and production processes moved from China to somewhere closer to home. Doesn’t it sound fantastic and much easier to have production costs and time reduced significantly if everything was moved to Mexico? Yes, Mexico!

In this episode of the Page One Podcast, Luke Peters interviews Ryan Fernandez, the CEO and co-founder of BRH2 Plastics, a plastics injection molding factory based in Hermosillo, Mexico. He was the CEO and Co-Founder of Boon and Keen Distribution, now referred to as BKD – a subsidiary of Tomy, following the full asset sale to Tomy Inc., a publicly-traded company in Japan in August of 2011. He shares a detailed description of what it means to manufacture from Mexico and how it has significantly made things easier for them at BRH2 Plastics.

Listen in to learn how a business-based relationship between the US and Mexico could mutually benefit the two neighbors solving many of their differences. You will also learn the importance of creating a management style that focuses on people’s growth without also delegating excess authority.

Key Takeaways:

  • The importance of building relationships that will help make things easier when buying or setting a factory outside of the US.
  • How to create a style of management that cares for its people and their growth within an organization.
  • How manufacturing in Mexico has made things easier in production, time, and cost compared to China.
  • Finding out how to partner with shipping companies with much better rates than small business rates.
  • How not to give a sense of authority to people beyond what their sense of authority should be as a leader lest it backfires.

Episode Timeline:

  • [2:46] Ryan explains how he and his team brainstormed to make manufacturing less painful by doing it closer to home.
  • [6:16] The logistics that were involved to make setting a factory in Mexico possible- from relationships to money.
  • [8:45] He explains the time it took them to start manufacturing and the types of products they manufacture.
  • [13:03] How Ryan handles financial strategies as his partner Hector handles the day-to-day operations on the ground.
  • [15:01] He explains how they’re working towards improving the management style to be about the people.
  • [18:58] How the supply chain is changing from China and China plus one; to a possibility of completely replacing China.
  • [20:46] The advantages of manufacturing in Mexico over China in terms of time and cost.
  • [22:45] He explains how they handle the production process plus the production model they follow from when the order is made until its delivered.
  • [30:38] Learning how to properly handle shipping and getting better margins from shipping companies.
  • [33:32] The importance of a business analyst in analyzing the product trends and recognizing what is of importance in your business.
  • [37:16] Ryan describes what he believes were his biggest mistakes in business.

Speaker 1: Welcome to the Page 1 Podcast, a podcast featuring a variety of guests and thought leaders on topics ranging from digital marketing, sales channel strategies, influencer marketing, best in class product launches and all the details about how to accelerate sales. Now here’s your host Luke Peters.

Luke Peters: Thanks for joining us on the Page 1 Podcast. I’m your host, Luke Peters, CEO of NewAir Appliances and Retail Band Digital Strategy Agency. Business owners do you wish you had someone to create a custom strategic plan to grow your online sales, someone to show you how to execute it with the team you have? That’s what I do. If you are lost, we can help you now. If you want to grow your digital sales find me on LinkedIn or email me at @lukeretailband.com. And specifically we’re talking about the homedepot.com, wayfair.com, amazon.com and other digital branding assistance that you may need.

Luke Peters: All right, excited about this one. In this episode, you are going to learn and hear from Ryan Fernandez on how to move your manufacturing to Mexico and how the geographical change will help your logistics. Ryan’s a CEO Co-founder of BRH2 Plastics and OEM manufacturer in Mexico for Ford, Proctor & Gamble, Munchkin and others. Also CEO and founder of Bumbo USA, was the CEO and Co-founder of Boon and remained as President following the acquisition by Tomy in 2011 until 2016. Ryan has an undergrad from George Fox and an MBA from Pepperdine University. Ryan, thanks for joining us on the Page 1 Podcast.

Ryan Fernandez: Thanks for having me.

Luke Peters: Awesome, hey did I miss anything there on the intro?

Ryan Fernandez: Oh, man it was actually too long. I felt like I was a team you’re introducing to a room.

Luke Peters: That’s funny. Well, we try to give the audience a little bit of perspective and a little bit about yourself. And so first we’ll start out with a couple, a little bit more about your business and specifically, you know just for the audience we’re going to talk about near shoring. You know I know a lot of you guys are maybe selling products that are plastic mold injection, or you know and some of your customers might be Walmarts or Targets and I got a bunch of friends in those types of businesses… While most of those products were traditionally made in China and now Ryan and his company are doing that here close to us in Mexico. So we’re going to talk about that and also how the supply chain is sped up and aided by that. So why don’t you kind of just kick it off and tell us a little bit more about your business and what you guys make?

Ryan Fernandez: You bet. Well, I probably should kick it off too by saying how I came to be, because having started Boon, which you talked about, my introduction, having it be a retail products company. As a baby’s products company we started from the ground up and built it. The huge issue that you start out with is where are you going to source your products? Where are you going to make them? And obviously we’ve heard that it’d be so great to make everything in the U.S. and there’s some definite realities to that. I think growing up in Wyoming, being a little bit on the rural side, you’d love to believe that that would be possible, but it’s not. And I think those of you who make products out there know that it’s not. I think designing, building, you’re creating brainstorming, is what we’re really good at, but then it’s trying to find a place to make them.

Ryan Fernandez: So all of Boon’s products were sourced in China. When I got ahold of Bumbo they’re sourced in South Africa. And so getting a… Any of you guys who know what a Bumbo seat is, they’re those [inaudible 00:03:49] four seats that every baby sits in, they take a lot of room for the amount of money. And so you can get 2300 of them into a container and that container has to come from Durban, South Africa all the way to our 3PL warehouse here in the U.S. which can take 60 to 70 days. We sell anywhere from 30 to 50,000 [inaudible 00:04:07] a month so you can imagine how many containers are floating on the water. How many are sitting in a warehouse, how many are on order, and you can imagine how long that cashflow chain is, where it’s about six to seven months before you see cash.

Ryan Fernandez: And so we can have so much money being wasted. So that really drove me to think of how do we find a way to make it not so painful? And it really comes down to location manufacturing. South Africa was an easy target. And so we started back in 2014, really trying to get this figured out. It was actually at probably 2012, 2013. And we looked at Mexico because obviously from a labor perspective there were some possibilities, ran into a lot of issues of just not being able to find a good fit for us. We eventually came into a group, but then one of our partners said… we’re sitting in my office in Phoenix and he was like Ryan, “Why are we basically handholding this group all the way through it when we know how to do it, we have the capital, we have the leadership and two of your three partners speak Spanish?”

Ryan Fernandez: And so I was looking at them and my wife was in the room at the time. She’s the one that basically killed all my ideas. If I’m going to want to start a company, she’s like, “It’s a terrible idea.” And so this is one where she would look to mention like, “Duh.” And so that was it. That’s really how we started the factory was without the need to really cut some costs out of a South African product. And then it actually maneuvered its way into competing head-to-head against China, but that was a couple of years down the road when… Maybe I should take a breath. Do you have any comments on that before I continue on? Yeah.

Luke Peters: I was just going to jump in. So you guys are working doing other… work in another company and you guys decide to start this and that was around 2014. And how much capital did it take? If you don’t mind or give us a ballpark. And did you guys just literally go buy a factory in Mexico? Did you partner with somebody over there? Like I mean, people over here have never thought of doing something like that, you know may want to know some of the… you know what it costs and kind of what were the basic steps? Ryan Fernandez: Sure. It’s not easy and I’d love to sit here and tell you how easy it is and it’s not because number one, you really have to navigate around the municipalities, around the state and around the Federal Government. And when you’re dealing in Latin America, you’re dealing with who you know, and how you create a political relationship with them. And one thing we did good is we actually brought in one of the partners, his name was Hector [Mason 00:06:42] from their group of [Mason 00:06:44]. And the Mason group is a billion dollar group out of [inaudible 00:06:47]. So he’s a grandson of the big dogs, but he is still a member of that group. And so having his name tied to it helped us really kind of get into municipality. And then my other partner, Hector [Placentia 00:07:01], he’s just… he’s amazing.

Ryan Fernandez: I mean, he’s just a communications machine and just really had everybody, he’s friends with the Mayor, he’s friends with the Conflict General, he has everybody in his back pocket and not from a back pocket of a standpoint in money, but a back pocket of friendship, which is really, really important.

Luke Peters: Yeah.

Ryan Fernandez: And so you’ve got to kind of have the relationships, it’s the biggest piece of it. From a money perspective, there’s another issue. And that is any assets that are not on U.S. soil, a bank’s not going to lend money on unless they have some type of treaty where they’re able to seize these assets. Well, Mexico is not one of them. And Mexican banks just… they don’t have the ability to lend on assets because they don’t have the system in place to collateralize to a single bank and have subordinated debt and all the different products that we have available to us in the U.S. And so we had to fund it, pure and simple, pure cash.

Ryan Fernandez: And so myself, luckily I was coming off the… I had just sold Boon and Keen Distribution to Tomy and I was still acting as their CEO, but there was a pretty big sale. And so we were pretty well-funded. But yeah, we paid for cash to get it going. We did not buy the building. We leased a building. You get to deal with less doors that are sometimes US-based. I think ours is based in San Diego. So you do a lot of transaction dollars, which is nice, but it’s a tough thing, I can keep going into that process, there’s…

Luke Peters: Well quickly, like how long did it take, start to finish? So you guys decided to do it, you got the funding, you got the connections and how long did it take, start to finish to where you’re actually making product?

Ryan Fernandez: Probably about six months for phase one, and phase one was moving into a building with somebody already there that already had what is called an AmEx number, which is the ability to export out to the U.S. or to any other country. So we basically rented their AmEx number. We use their payroll system, we used a lot of their machanations and I was all tied into how much we paid for rent. And so we set up our machines in there. We had our small amount of space to start. I think we started with about 15,000 square foot with the ability to flex up when we needed to. And that was about a six month process. The problem was within just over a year we were already too big and needed to just flex into our own space. And so we rented a 70,000 square foot facility just down the road inside that industrial park where we then had to move stuff in stages so we could keep up with our business.

Luke Peters: Yeah, no, I mean, that’s amazing, there was six months, you know you guys move… I mean, that’s incredibly fast, it would seem to move that quick to a viable business. And then it sounds like you guys continue to grow, and then quickly Ryan, just finishing up the story, tell us a little bit more about like maybe an example of a couple of products that you could finish up that maybe that product from South Africa or any other. So the audience really understands kind of what you guys are making.

Ryan Fernandez: Sure. I think our expertise are really three kind of arenas as we speak today. And that is we do automotive, so we do some parts for Ford. They’re in the process of moving away from the Ford Fusion and the Lincoln MKZ and are bringing one of Bronco versions into Hermosillo. So we’ll have some of those parts. And where we act is a tier two vendor to Ford through two companies called Magna out of Canada and then IAC out of Detroit. And so they get the parts for Ford and then they divvy them out to two tier twos if they can’t handle the production. So we do quite a bit of that, and those are usually black part, unseen, under the hood. We did… Well we did do the bezels on the front. So that’s seen, for the fog lights we also did the battery holder for those… Anyway, so for now the Ford, we’re in transition, we’ll see that again.

Ryan Fernandez: But then when you step into our retail products arena, and that’s where we’re actually really good. And where we started was one of my old products that I owned from Boon, which is a baby products company. And we had an extra tool sitting in China so we brought it over and we make about 50,000 of these a month. And they’re a drying rack for baby bottles and different things. And it looks like graph, it’s a really cool product. And so we started shooting that and realized that and Tomy realized that they were beating China on a fully burdened landed cost versus just to try kind of looking at it as a [inaudible 00:11:49] B model. And that’s really the first product that really took off. And that’s where I knew, “Oh my gosh, I can compete in Southeast Asia.” And I can be walking into somebody’s office and saying, “I can make your stuff, a one hour flight from Phoenix and you may even be able to understand the language and we can compete with China.” It became a pretty easy conversation.

Luke Peters: That’s awesome. And how many team members do you guys have now? So we can get a sense of scale or how big is your operation?

Ryan Fernandez: We’re about 140 people right now. We have a pretty small front office of about 12 people. And then there’s all the rest are operators on the floor. Packagers are quality and safety, all of that. So yeah, about 140 today.

Luke Peters: Great. And then we were talking that you kind of share time between Wyoming and Arizona, and of course they have a U.S. operations as well, but just for the listeners, Sonora is in Mexico, it’s about six hours south of the border. I think we’re talking about that, a six hour drive, one hour flight, you know talk to us about if you’re working remote what is the most important KPI? Obviously you’re on Zoom, you’re talking to your team, you’re CEO of the company, but what’s the most important KPI that you need to track?

Ryan Fernandez: You know for me and the fact that that Hector is on the ground every day, well basically every week, four days a week, we get it really good, he’s really handling all the KPIs from a standpoint of volume and what’s happening. Are we handling quality control? Are we getting too much waste? For me, I’m able to dial in and look at the daily reports that were the financial kickoffs. And so what it allows me to do is say, “We’re running at 18% to revenue with our labor.” Which is about exactly where we need to be, or why are we at 20%? And the Hector’s like, “Well, you know with COVID, we’ve got a bunch of our people at home, we’re having to bring in temporary workers.”

Ryan Fernandez: And so it’s really kind of having my hand on the pulse of how the dollars work, because it gets very complicated especially when you are dealing with Pesos conversions to Dollars and you’re dealing with two companies. The SRL that is Mexican entity and U.S. entity and how that goes back and forth with exchange rates. It’s pretty wild. So for me, Hector relies on me to be the kind of their financial strategist. And so I spend my life in the numbers where I count on him to really manage the day-to-day operation.

Luke Peters: Awesome. Okay, cool. So let’s jump into this topic. And again, we’re going to talk about nearshoring your supply chain. I think, you know, I mean, the first thing I think about is the shorter time period, more flexibility, new product launches with lower MOQs potentially, right? If something’s in your back door instead of three week ocean freight or even longer sometimes, right? So that’s going to be the theme and why don’t we start with this. Actually this is kind of a quote I think from our back and forth prior to this is that, you know how to move people from point A to point B, is that more of like a leadership comment on your company? I’d like to know kind of what you meant by that?

Ryan Fernandez: It really is. You know, there’s a lot of people. I always look at intelligence and intelligence shows itself at such different ways, either you’re scientific smart, you’re finance smart. You’re the art smart, there’s so many different ways. And I think for me in business, the art of being successful is being able to move people. So it’s either moving your employees, it’s moving your customers, but it’s getting them to where this goal is and doing it in a way where both people win. And that’s really where my education was growing up, from my mom teaching us how to deal with insecurities and weaknesses and how to always be listening to what the other people are trying to say to studying psychology as the main focus of school then moving into business. I think it all comes down to how people feel.

Ryan Fernandez: And it’s amazing to watch our workers. We have a 10% turnover in a Mexican factory which is unheard of, and we have not lost a single person from our front office in the six years we’ve started, we’ve only added people. And it’s because we manage with that style. I mean, we care about our people? We care about if they’re growing inside our business and American management is very, very needed, American style management is very needed in some of these places that have really only known us in the mentality or the rich and poor.

Luke Peters: And what’s like a specific example of maybe how you improve that culture? That would be kind of fun to hear.

Ryan Fernandez: Cool story. Hector and I had just been to a show in Mexico City called [inaudible 00:16:47] and then it’s where basically all the manufacturers of all the cool machines and plastics reps, they’re all there. So we had gone to a couple of seminars and we were back on the floor together at the factory. This was probably 2016 and we walked the floor. We talked to everybody and Hector’s down there and he asked one of his operators who’s running this 530 ton injection molding machine. And he asked him, he goes, “Hey, [inaudible 00:17:11] on this new process and we want to ask you to see what you think of it.” And the guy goes, actually, Leo, Leo goes, “I’ll implement it right away.” And Hector goes, “No, it’s not really what I meant. I wanted to kind of get your opinion.”

Ryan Fernandez: And once again, he’s like, “Well, I’ll get it done boss.” And Hector was, listen, he was, “I really want your opinion. I don’t want to hear that you’re just going to do it. And is it a good idea?” And the guy goes, “Well, you are my boss, but no, it’s not a good idea and this is why.” And Hector said, he was, “I want to explain something to you.” He goes, “You know, this is not, I am the boss of this building. You know, I’m the boss of making sure everything’s going good and that you’re happy.” He goes, “But you’re the boss of this machine. No one knows this machine like you do. I don’t.”

Ryan Fernandez: And it was just so fun to watch the light bulb go off on this guy’s face, “Like I am the boss.” And I think that’s the biggest piece is that each of these people, every person in the world now is one hierarchical needs, right? But you want to feel like you’ve got control of something in your life. And Hector does an unbelievable job of these people believing in their age to bleeding you know, are blue and black and really believing in themselves and being able to grow. We have people who’ve got cars for the first time in their lives because they grow within the business. It’s been a blast. I love it.

Luke Peters: Yeah, that is a great story. You know, communication, trusting your team, giving them some autonomy. So yeah, I guess it doesn’t take free lunch, free dinner every day. You know, these are like you said, these are just basic human needs. Listen right now near shoring is a huge buzz term. Talk to us more about why? I mean, obviously we have the tariffs out there, but is there more to it?

Ryan Fernandez: I think there’s a lot to it. I think… So what was really weird is we started way back in 2014 and I thought that was the moment. But then the administration, you know the President kind of went after the NAFTA deal and China was kind of a love child in the way. And so it really slowed us down for two or three years because we didn’t know what happened with NAFTA, it had to be repealed so everyone kind of press pause on shifting manufacturing. Well, then it was a trade war on China. UNFCCC got signed. It’s actually a very good deal. And so everything just turned again. And so phones started ringing again, 35% tariffs are… even though they’re not going to force manufacturing still to come to the U.S. it definitely made us a lot more attractive. In fact, in some ways, hugely attractive and then Corona hit and the issues that came with supply chain because of it being starting in China.

Ryan Fernandez: And so you can have kind of a political belief there, but then outside of that not being able to get product for a long time. It began people really taking a look at their supply chains, going, “They’ve been talking China plus one for years, but how many people actually do it?” And so what this did is this made it, so not only as a China plus one, but it may be replacing China if we can find somebody who does it. And now, I mean Hector told me last night on the phone, he goes, “I need you to stop talking to people because there’s no more business development for a while.”

Luke Peters: That’s a nice problem to have, you know looking at it. So there’s tariffs, prices are still sometimes cheaper in China, but you mentioned earlier fully burdened costs, how do brands still make that decision to go near shore? So again, we’ve got a lot of brand owners listening right now.

Ryan Fernandez: Yeah, thank you. Yeah.

Luke Peters: I’d like to hear you, how you think about it and break down the different decisions that have to be made.

Ryan Fernandez: Most of them are dollars, right? So you can sit there and say, “Okay, you’ve got this 40 foot high tube container coming from China to the warehouse, and that’s going to be an all-in 3,500 $4,500 deal.” So then you have how many products inside that container, and you can break out how much the costs are. Where if you’re making it in Mexico, you’re going to have an $800 drayage from Hermosillo to Phoenix or a $1200 drayage from Hermosillo to LA to where your 3PL is there in a 53 foot truck versus a 40 foot high tube container. And so you’re able to just with that piece of information, go, “I am saving this much against my Chinese counterpart and it’s significant.” Number two, you have… you said three weeks, I always say it’s usually 30 days from door to door from China.

Ryan Fernandez: So in order to do that, and you’ve got a customer like Target who counts on certain amount of business, and they also have some upsides that you have to be able to cover them. You’re going to have to say, “Okay, I’ve got a month on the water. I’ve got my order time in which could be anywhere from three to six weeks.” And then you also have your stock of inventory that has to sit in your warehouse. And so when you… It becomes almost like a three to four month of inventory float, where when you’re in your nearshore, if you’re in Hermosillo kind of like with our Munchkin counterparts, they are our customers. They say, “Hey, we want you guys to keep a week of inventory on hand. And oh, by the way, don’t bill us until you ship it.”

Ryan Fernandez: And I’m kind of like, “Okay, you got it.” Because I want their business. Think about that for a second. I mean, we’re sitting two days from their door. And so we’ve got the ability to literally slam a week of a volume to them in two days. It’s just… So not only are we cheaper, but then you’re taking a look at how much time you can save on getting your product to your warehouses, to your customer, but then also the fact that you don’t have to keep six weeks to eight weeks of inventory, extra 3PL paying for that storage. You’re able to kind of go just-in-time inventory and make it, so you’re cross-docking at the facility or keeping only a week or two of inventory there.

Ryan Fernandez: So now you’re saving money at the warehouse in 3PL level. And then when it gets really crazy, Luke, and this is when it’s really fun is when you have the factory actually warehouse it, pick and pack business to consumer, label it, take it to the border and drop it off at USPS, UPS or FedEx, and have it go out. So now you’re eliminating the 3PL altogether, and that’s a huge cost.

Luke Peters: Well, and tell me more about how that works on time though. So if, I mean, do you lose still a day or two of shipping speed versus a U.S. 3PL or… that’s awesome because everybody wants to simplify their lives, right? And if you guys can… You have it, you handle it, you pick and pack, you bring it to the border, how long do those extra steps take?

Ryan Fernandez: So quite honestly, what you’re doing now is that you’re… The only extra step is that you have to drive it from Hermosillo to, what do they call those? Those free zones to get it there. And that’s a four hour drive. It’s the only extra step. So… And what’s crazy is it was a little more difficult because you had to factor in every once in a while, like having maybe a customs delay or whatever. And so probably a year ago, we were struggling with it because the two day prime was always, so it had to be perfect. Well, since Corona’s hit two day prime means I’m going to get this in four to eight days. That’s how it feels to me. And I think people have kind of began to relax a little bit on expecting that product so fast so really that it gets three to four days or two to four days, it works in the model.

Ryan Fernandez: And we’re seeing that we’re getting closer and closer there. Now let’s take it in, let’s go to direct to consumer take that model where you’re actually shifting from the factory floor and trucking it directly to Target’s DC or Walmart’s DC. So you’re still bypassing the 3PL so that it can also happen in the big box or an EDI world just like it can in a business to consumer.

Luke Peters: Yeah. Well, so many questions inside there. So now typically when you’re ordering from China, it’s a 60 or 30 to 60 day lead time for production. I mean, even longer now, because right now it’s just so backlogged. And then it is about three weeks to the port, but then the port drayage to the warehouse, and right now all bets are off because the supply chain-

Ryan Fernandez: Oh, tracking.

Luke Peters: Yeah the supply chain is a disaster as well. So it’s like on both ends it’s a huge mess right now. How long are the lead times? And again, not just with your firm, but just overall in Mexico, is it still that there’s a lot of orders in queue and it’s 30 to 60 days, or are you guys a lot quicker on the lead time on the production side as well?

Ryan Fernandez: Well what we’ve done is we’re at full capacity, but we’re producing what we can produce for the customers that we can have. And so there’s two or three customers that want to bring more products to us and more molds, but what we do have it is about brilliant, about a three week lead time for your order to shut down. So when you place it, we’ll have it produce for you in three weeks.

Luke Peters: And how about mixing those? So it’s produced, what? 52 or 56 foot truck, whatever they’re being put into, are the MOQs, is there more flexibility on that side or is that still tough because of just how the production process is? And there’s got to be some sort of minimum amount of the plastic or products used between switching?

Ryan Fernandez: You’re a 100% right. I mean, is there flexibility sure because if you’re a big customer and say, “Hey, I want to just kick this off, I want to try this.” You know we’re usually pretty lenient. But when it comes to really full production, we want people, I mean, we’re five, probably 5,000 is where ours is, which is pretty low compared to China. I think usually China’s between five and 10, every once in a while we get somebody at three if the product’s big enough and we’ll do the same. Is Fox big enough? But it does, it comes down to moving that tool. It comes down to flushing the pipes, all the tubing [inaudible 00:27:08]. And so the manufacturing process itself is what dictates minimum run for the MOQs and…

Luke Peters: Yeah, and Ryan, again, like I mentioned in the beginning or just when we were talking privately, like for my company, NewAir, our purchase process is a little different. We’re not doing a ton of, well, some of our products are, but most are not plastic injection molding. What would a potential customer or a new customer have to bring to you? Are they going to have to bring the tool? Or is that done together between you and the customer, or do they do the engineering on their end? Are they’re bringing that to you? Talk to us a little bit about how that process works.

Ryan Fernandez: Well, it happens on all, so every potential variant that you just mentioned are true. So we have customers who say, “Hey, I’ve got an extra tool. I want to bring it your way.” So they get it sent to us. We import it. We now have it, we ship for them. We have others who say, “Hey, we have a tool and we want to move it from one facility to the other.” That gets a little bit more tricky for them, but if they’re strong enough and powerful enough, then they can do that. And then we have the ones that come to us with CAD, with a CAD ready package or a production ready CAD package that we’ll partner with a toolmaker and be a part of the tool-making process to make sure it all ties in well with our production model.

Ryan Fernandez: And then we bring that tool in house. The customer pays for it, there are models, and we’ll probably eventually do it where if we have the right customer we’ll pay for it and then amortize the tool back to them. Or if it gets to a point where we’re doing generic stuff, we’ll pay for the tool because it will be something that we can keep, or even OEM it under a different brand for somebody else. So there’s lots of different ways to approach it. One thing we don’t do is we don’t make our own tools. We have to use partners. And as of today, we only partnered with some Chinese partners, because they’re so good at what they do and their pricing are just so much better than anywhere we could find in North America, including Mexico.

Luke Peters: Yeah. And what is the typical range? Obviously I know that your answer is going well it depends, but what is the range of a tool? Just give us some ballparks there.

Ryan Fernandez: Sure. Well, so it depends on the size of the product. So I’ll give you some examples. So if you’re looking at, say a little utensil set, so you’ve got really… label the utensils and there’s going to be three sizes of them. So it’s a little family molded utensils, and it’s going to go on probably 120 ton press. So that will probably be anywhere from a 15 to $20,000 tool. And it will stood on a 120. And then we have a 780 ton machine where you think of a big high chair seat that doesn’t have any hinges. And so it’s all one part. And so that tool will probably be about $120,000. So anywhere from probably that 10 to 120 in the size of the machines that we have, which cover a big range of retail products from really small, to really big.

Luke Peters: Yeah, that’s helpful for sure. I think you talked about it a little bit already with shipping, but are there any other ways that dollars are lost in the process of shipping or I guess another way to say it is areas where US-based businesses can kind of gain even better margins by working with a Mexican factory?

Ryan Fernandez: Well, I think it’s deciding kind of how to take a look at every lane and go, “How can we find pennies here?” And so for us we’re kind of partnering with a 3PL in Phoenix because it obviously makes a lot of sense. We have our head, our headquarters are there, it’s a six hour drive from Hermosillo. It also feeds the rest of the country really well where it can almost go the country wide when it comes to the zones and zoning to get there within two days to everything. So it’s a great drop location. And since it’s a six hour drive and we’re shipping a ton of our products from our factory to that location, investing in a couple of trailers and a couple of single bed trucks having it be on the Mexican side for cost reasons, and then running up our own.

Ryan Fernandez: So we handle the trades. So instead of paying that $800 drayage cost, it costs us 200 bucks for that 53 foot truck to go up there and then finding it on a way to still have that trailer filled with US goods going back across the border so it’s not deadheading back is a huge opportunity. So working with a broker that can make things go that way, that’s I know extreme, but it’s just, as business owners we have to take a look at the things that don’t make sense to us. We know how to make the product. We know that it’s going to cost X, we know how much we’re going to sell it for and you’re going tell Target they need to pay a little bit more, but it’s identifying like we talked about off air money in the mundane and profits in the pennies.

Ryan Fernandez: It’s where do you find those little pieces of profit that’s being overlooked. A big one too, is it’s quite honestly shipping with UPS, FedEx, USPS and finding the ways to get the best rates and not accept rack rates and not accept you’re a small business, that you’re going to get a small business rate from them. It’s finding out how to partner with people who have much better rates and splitting the profits. That’s a awesome strategy to use.

Luke Peters: Yeah and that’s so important right now. I mean, I’ve seen their rates have just gone… It’s like healthcare, you know it’s somehow they’ve got into the healthcare boat where their rates have gone up so much year after year after year.

Ryan Fernandez: Because they can.

Luke Peters: Because they can, yeah. I mean, they have, you know, Amazon’s like done their own thing, right? So they have their own tracking. And so, you know UPS and FedEx realize that and they’re almost, you know they’re not a customer, right? Amazon I think, cut out FedEx and had some problems with that and are cutting back on UPS or all the way out. I don’t know how far at this point, but for the typical business, yeah, they can. They have that monopoly, you know, also in the questions that we kind of went back and forth earlier, you mentioned that having a business analyst is vital, I would love to hear your thoughts on that and what the CEOs listening now, what they should be thinking about.

Ryan Fernandez: I think it’s being able to identify the areas that we forget about. It’s kind of like in your household where something kind of gets put on the counter and if it stays there for three or four days, it becomes a fixture, right? And [inaudible 00:33:53] like, “Why is that there?” And I think we sometimes as the business owners or people that are building our businesses work, you look at products and we go, “It is.” I mean, it’s here’s the product and we never think of it again because we’re cycling through the numbers. And I think where the business analysts have come in so important for me is getting in and they’re constantly looking at the business going, “Is this a good product to have? Do we need to end of life it?” Do we need to focus on something else? Is it taking away from us being better in other areas? Are we not putting enough into this product?

Ryan Fernandez: It’s being able to really analyze to be integrating almost hourly in our daily, the trends of your products and how they flow, especially with business to consumer and Amazon and all the social media platforms, it’s all built on trending. And so how do you help that trending along and also get rid of the things that will trend well for you without a lot of focus?

Luke Peters: Now, Ryan, I hope I’m not being too naive here, but so we have a demand planner, obviously and that demand planner helps with identifying a lot of the things you’re talking about, but maybe not to the full extent. It sounds like the skillset you’re talking about goes a lot into sales or is a business analyst in your view, is it the same as a demand planner? Or are there… You know I’d love to hear a little bit more about kind of what’s in there duties. You know, I’m sure people listening if they don’t have a business analyst it’s always fun to hear how people have the org charts set up and also where the different functions that other CEOs find important.

Ryan Fernandez: I think the demand planners can be a part of that. In my organization we have… Our demand planner is separate from our business analyst and the business analyst is more, a lot of times part of your product management team. So that business analyst will actually be the one to keep the product CDOs. I don’t know what CDO stands for anymore, but it basically takes a product when you start something out and you take a look at it’s value proposition. So you put in all the parameters and spits it out and says if it’s a viable product or not. And I think the thing about a business analyst and that they’re taking those product CDOs and they’re running those numbers consistently instead of just when you’re looking at it, that’s sort of something you should bring to market. And so when you talk to somebody and they go… When I talk to my best mate or to Michael, “How does a CDO look today on X product?”

Ryan Fernandez: He said, ” Well it’s improved quite a bit since we changed this model and we’re able to drop the price a little bit at the retailer level and so they’ve been able to then drop down to the consumer and we’re seeing a good pop of it.” And so it’s being able to constantly see the shifting aspects of your products, because gosh there was a time where I was selling a high chair that sold really well and revenue wise was really high. I was using two and a half bucks every one I sold and I did it for about a year and a half-

Luke Peters: Oh, men.

Ryan Fernandez: And it’s having somebody with their fingers on the pulse of the products that we can do as the [inaudible 00:36:57] strategists. Right?

Luke Peters: Yeah. I know that, that’s super helpful. It makes a lot of sense as well. Well, listen, I enjoyed talking about near shoring and we’re looking all over the world. Like I think a lot of companies are, right? So this is, it’s a super helpful conversation, I just wanted to ask you one last question, you know being the CEO of a couple of different companies, what’s been your biggest mistake and what have you learned from it?

Ryan Fernandez: Oh man. My biggest mistake with Boon was not having, not being physically present with choosing my first sourcing company. And that was a huge mistake and it nearly cost us our business, and dealing in China when I was so fresh to what that meant. Looking back on that she was really small, but it could have stopped us right in our tracks. I think the second biggest one is for me or now that’s probably more pertinent is understanding how to manage as your majority owner and being at the top of something and pushing a kind of a monarchy led democracy. Because I’ve gone wrong usually on the side of pushing a democracy so much that it makes it so decision-making is slow.

Ryan Fernandez: It also makes it so that people kind of forget their place at the table and things go awry and they break down. And so I think it’s learning how to manage from the top because I’ve always managed…. I’ve always made myself manage from not the top. And yeah, it’s been a very strange year and a half trying to master the art of being a Monarch instead of being a Senator.

Luke Peters: Yeah. And to clarify, does that mean learning how to delegate and create a team that thinks on their own or does that mean actually reigning more of that in and being more quicker to decision making and leading? Which side are we talking about here?

Ryan Fernandez: Well for you it’s funny is, I mean, obviously the art of delegation is vital and the art of having people feel fantastic inside your organization, what I’ve learned is that you can take that too far.

Luke Peters: Okay, got it.

Ryan Fernandez: Especially as a leader, as a CEO, as a co-founder, as a founder, as a person who has all the money in that stake you can push that too far where it gets… So I think the art of delegation, man, you can never stress it enough and you have to be perfect at it. But it also means that you don’t give a sense of authority beyond what their authority should be, because you think that would be good, it seems like it’d be the right thing to do and it backfires every time. And so I don’t know, it’s a psychological thing that I’m going to have to, you know, I’m going to have to really think about because I’ve always loved the thought of pure democracy inside a company and it just, it doesn’t work.

Luke Peters: Well, listen, it’s so interesting you bring that up and I think all the CEOs are kind of shaking their heads, it’s really, we want to delegate because obviously we want the team to kind of take the reins. Right? And then like you said, that can go too far where a, the team also needs a single point of leadership.

Ryan Fernandez: Yes.

Luke Peters: So there is that balance and there’s always going to be conversations and people feeling maybe things are unfair or there’s too many… There’s always too many fires in other people’s and you know… But listen, like you said it’s such a tough one and I think that’s a great comment, that’s a good way to finish this podcast. I think a lot of people, or you know maybe the more politically correct angle is, “Hey, you know we need to delegate and work on more delegation.” Which you know, you often hear that, but it is nice to hear a comment going the other direction that, “Hey, this can go too far and there’s got to be leadership within a company.” Ryan Fernandez: It’s really. Hey Luke, can I make one comment to just about the manufacturing in Mexico that I’m sure people would find interesting?

Luke Peters: Yeah, absolutely. Yeah.

Ryan Fernandez: I was on a kind of a speaking tour there towards a period of USMCA to talk to senators and all the local and state senators and congressmen around what does manufacturing in Mexico mean? Because there for a while, politically it was looked down upon and why is it good for America? And so I’ve learned a lot about this and one, on average 40% of all Mexican goods that are exported to the United States are made from U.S. raw material and… which is a very interesting thing. From our factory it’s 80% of all of our raw materials American and just think of this example. You have a toaster and Mexico exports to us for $10. Well, we had exported to Mexico $4 of raw material. So what’s the trade deficit between Mexico and the U.S. in this example? What do you think it is? So $10 toaster, $4 raw material, what do you think it is?

Luke Peters: Yeah, well, 60%, I guess, trade deficit.

Ryan Fernandez: Six bucks, right? That’s for trade deficit. The problem is that when we looked at trade deficits and not [inaudible 00:42:09] and we know it’s created, they did not think of this scenario. So it’s actually only a $2 trade deficit because we put $4 sorts for the toaster, they put $6 towards the toaster and there’s a $2 trade deficit between us, but it’s not looked that way. And so we look at Mexico going, “Well, we have a trade deficit with them.” In all reality, when the right math is put into play, there’s not a trade deficit with Mexico and we’re very symbiotic and it’s a beautiful relationship. And so, and China has less than 1% raw material is American. So I think that’s a very important thing for people to recognize when it comes to partnering with Mexico, you’re partnering with a neighbor, number one, you’re solving some immigration issues. You’re also solving some drug issues. And you’re also driving more American jobs in ways that you’re not when you’re getting it from different types of countries that are farther away from Mexico.

Luke Peters: Well, I’m glad you brought that up Ryan. You know it’s you’re way closer to it than I am. I mean, from my sense, I don’t think there is the pushback or animosity. I think people look at Canada and Mexico as our neighbors and we want to do more and more business hopefully with our neighbors, in North Americans as much as possible. But obviously you’re going to have more of a pulse on it, but I’m glad you brought up that example. I think it’s a really good one. And I think there’s more to it than just the trade deficit, you know just strategically and all of our allies and everything else that’s involved. So good point. How can listeners find a little more about you?

Ryan Fernandez: Our website’s is brh2plastics.com. That’s… And I’m right there. You can get ahold of me pretty easy I think either through… It’s an info email or it’s ryan@brht2plastics.com. Yeah. So I think that’s where usually when I’m on LinkedIn, which is always a positive way for business people to get together. I’m not on any of the other social medias. And so probably you’re not, people aren’t either because it takes up so much time, except for you, you’re podcasters so you got to be there.

Luke Peters: I have to grin and bear it, I’m not big in the social, but listen, we’ll have all that in the show notes and I definitely encourage you guys to check them out and check out Ryan’s company and really appreciate you coming on this episode of the Page 1 Podcast sponsored by Retail Band and I hope everybody has really enjoyed this interview today. I really appreciate your reviews on iTunes and hope you all join us for the next interview. Take care everybody.

Speaker 1: Thanks for listening to the Page 1 Podcast with Luke Peters. If you enjoyed this episode, please help us out by leaving us a rating on iTunes. Want to double your online sales? Check out www.retailband.com. and don’t forget to join us next week with our next amazing guests.


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Episode References:

Contact Ryan Fernandez: LinkedIn

Contact Luke: luke@retailband.comLinkedIn 

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