Helping Africa with Palm Power

We are proud to announce a couple new products that we have been spending the last year developing. But first a bit of background:

A friend of ours has been working in the Democratic Republic of the Congo in Africa for a number of years now. He provides technical help to mission hospitals. Four of the hospitals he works with serve a total population of several hundred thousand people with the bare minimum of resources. One hospital in particular has the only water source (a spring) 400 feet vertical below them and it is a 1 mile walk down to the water along a switchback. When you go to the hospital for an operation you have to get your own water for the wash up and operation. So down the one mile road you go with a pail and back up another mile carrying the full pail of water. I don't know if you ever carried water in a bucket or not, but even the healthiest of us here in the west would have great difficulty carrying water that far. So our friend has proposed installing a powered pump at the spring to lift the water to the hospital. Next, problem is the price of fuel. Diesel (the fuel of choice) is more than 4 times as expensive there as it is here. About $4 per liter (quart). This in a country where the average worker earns $120 per year, or $0.60 per day.

We looked at this problem and found a clever solution. When Rudolf Diesel first invented his engine it was designed to run on all sorts of fuels including coal dust and vegetable oil. So we looked into the feasibility of running a diesel engine on a local source of vegetable oil. As it turns out certain types of diesel engines when given some conversions will run on palm oil - and palm oil is plentiful and very cheap in this area of the D.R. Congo.

So our first Palm Power project is to install several 10HP diesel powered water pumps and several 20HP diesel powered generators to give these hospitals plenty of water and electricity.

These engines burn clean palm oil and don't contribute to the problem of CO2 emissions. (They are CO2 neutral because the CO2 they give off in burning is absorbed again by the growing palm plants.) They are also much cheaper to install and maintain than even solar electric.

What a satisfying project! And what a change it will bring to these hospitals in the Congo.

Future Hot Spots for Manufacturing

From time to time we are asked where the latest "hot spots" for manufacturing are. Currently the answer is: China, India, and certain areas of Eastern Europe. We already have operations and partners in these regions. We are also keeping our eye on (meaning investigating and developing contacts in) other areas of Asia and parts of Africa. However we feel these other areas will not be ready for reliable and consistent output for at least another several years. Some problems with these developing areas include poor infrastructure (roads and reliable power), untrainable labor due to lack of nutrition, and government corruption that is so bad it is almost unimaginable in Western society. As these problems are solved investment into these areas will rapidly increase. We will continue to monitor all available opportunities for our customers and make them available when we feel it is prudent to make the move.

Inspections

Every new product that we produce gets 3 levels of inspections.

First, we carefully search out and inspect the factories. We look at things like experience, ability to produce in volume, quality of workmanship, facilities, machinery and quality (and age) of staff.

Next, at critical points during the production we do QC checks to make sure the products are being produced properly.

Third, just before shipment we do a full QC and freight audit check on a statistically valid sample to ensure the product is exactly as the customer is expecting it to be.

From time to time we also employ third party inspectors to perform these functions or double check the work being done.

All of this is to ensure you get the very best quality at the very best price.

Accounting Advice I Don't Agree With

Our Company Payment Policy for product shipments from Asia is 50% wire transfer with order and the remaining 50% as a wire transfer against the copy of the Bill of Lading faxed or mailed to the customer after the inspections are done. These terms are structured to give our customers the very lowest part cost. Our North American office ensures you always have local people to call on.

 

However from time to time we have customers asking for extended or different payment terms of one sort or another.

 

The first problem for them is that everything has a cost whether they realize it or not. If they want more, it costs more. Since we work on skinny margins there is no room to wiggle, so we would actually have to charge more per part or for the tooling if we were to offer different payment terms.

 

Secondly, it really doesn't matter because 100% of the money is eventually paid within sixty days anyway. (I realize there is an accounting argument for this - being originally trained as an accountant - but I never really agreed with it because, for instance, on a $12,000 order the difference between paying 30% or 50% in advance is $2400. The best short term interest rate you could get on this ($2400 short term holdback) is about 3% per annum and only for 2 months (the average production time) so the amount of interest you could earn by not paying the extra 20% is exactly $12. But this assumes that the hold back is invested, which in most cases it never really is. (And if it is invested the cost of taking the time to invest and then withdraw the funds would be higher than the return from the investment.) There is also an argument that the extra 20% is then available for working capital but since it is already committed to a future expense I never was convinced of that either.

 

When you deal with Lunan Corporation you get the very best price upfront and right away. But, if you really do want to change the terms, we can cheerfully charge you more! <grin>

 

Rob at Lunan Corporation

Why Manufacture in Asia?

There are three good reasons to Manufacture in Asia

 

First reason, is cost. The cost is typically 1/5^th to 1/3^rd of what you would pay for the same product being manufactured in Canada or USA. A product that would cost around $20 to make in North America, would cost under $5 in China.

 

Second reason is new products can be brought to market that otherwise wouldn’t make it. In North America it costs a lot of money to bring a product to market.  To make all the parts, the factory has to make molds and other things called tooling. The cost of this tooling might add up to about $50,000 in North America. This cost would deter most inventors from trying a new product. However in China we can make the same tooling for $10,000 or less.

 

The third reason we should use Asia is because most of the economical benefit from a product made in China stays in North America. This is a message often not understood. Here’s the reality. Usually 80-85% of the money any single product generates stays in North America. For example, let’s say a certain product sold for $100. $50 of that would be the gross profit of the retailer. Another $30 to $35 would be the gross profit of the inventor and wholesaler. This leaves a mere $15 to $20 that actually leaves the country, and even part of that may return because of freight income to the freight forwarders.

 

So clearly it is good for the country and we as consumers get lower priced goods and most of the money still stays in the country to build our own wealth. That’s why we should manufacture in Asia!

Lunan Corporation Manufacturing Blog open

The Lunan Corporation Manufacturing Blog is now open and running