Components

AXN Heavy Duty: Offshore insourcing

Some would argue that AXN is a typical US company, supporting the local community and committed to growth and prosperity. AXN’s strength, however, is based on a business model that is less typical – offshore insourcing.

Although offshore insourcing is not a new term – it’s been around in the IT industry for about a decade – it was not until the advent of AXN that a company in the trailing equipment industry would pick it up as an alternative to outsourcing.

Offshore insourcing is the practice of setting up a captive process centre overseas, taking advantage of the low-cost environment while maintaining control of the back-office work and business processes. Utilising that idea, Louisville start-up AXN has captured a notable share of the US axle market in record time. Lead by James Sharkey – a determined business man imbued with the spirit of progress and conscious of the fact that the brand is going forward at an unprecedented pace – the brand is believed to keep shaking up the North American market in the decade to come.

The driving force behind AXN’s IT-inspired business model is an experienced management team who forged the brand’s close bond with Chinese brand Fuwa, one of the most influential manufacturers of trailing equipment in the world – and key stakeholder of the Kentucky brand. According to Sharkey, being able to capitalise on the boundless potential of the global parent company is a key advantage in the current business climate.

“In a US market that is still bouncing back from one of the worst economic crisis in history, manufacturing capacity has been lost across the board as the industry needed to downsize dramatically to survive. AXN now benefits from that natural limitation as supply shortage is an alien concept in China,” he says. “Due to mere economies of scale, fluctuating commodity prices and labour shortage do not affect us as strongly as the competition.”

Utilising Fuwa’s production plant in China, AXN is able to outsource in-house – or insource offshore. “I am convinced that our concept is one-of-a-kind,” says Sharkey, who is keen to re-write Fuwa’s decade-old success story in the US.

“When Fuwa first entered the global trailing equipment scene in 1997 as the manufacturer of a one-piece axle beam, it could have been seen as just another low-profile mass-producer. The new design was different to the industry standard; and just as with every new brand, Fuwa had to fight for attention. But once the formed axle beam hit the road and proved to be a viable alternative to the classic welded design, they have been dominating the Asian transport scene,” he says.

“Considering that AXN only started out in 2009, I believe that the brand is on a good way to secure a notable market share in the long term. We know that we are on the right track because we have been accepted by the vast majority of the entire OEM sector as well as major fleets.”

However, there is more to capturing the US market than choosing a competitive business model, according to Sharkey. “We have to overcome the Made-in-China label and prove that Chinese-built equipment is competitive and can provide real add-on value and not just cost savings,” he says. “Thereby we will also prove that cross Pacific cooperation can be a win-win situation.”

Considering the triple headwind AXN is facing – a combination of anti-Chinese prejudgment, a murky economy and a shrinking market in regard to production capacity – the company’s rise has startled the US business elite. “Everyone was watching us like a hawk, especially due to Fuwa’s participation. But we were realistic enough to expect that, so we took one step at a time,” says Sharkey.

“We knew that we should take a very basic engineering approach at the beginning. We didn’t want to introduce innovation to the market at an early stage that would slow down our acceptance, because even if you’re an established company in North America, it still can still take a long time to introduce something new,” he adds, not hiding the fact that the Chinese involvement even caused eyebrows to raise amongst the AXN team itself.

“To be honest, a lot of the team were quite critical about both manufacturing skill and quality level in China before we launched AXN. But we’ve been actively involved in the design and layout of the Chinese facility, so we can be 100 per cent sure that the product will stand the acid test in the field.”

Since 2007, when the Fuwa board lead by Chairman Wu Zhiqiang decided to invest five billion Yuan (€0.6 billion) to set up a mega plant in Taishan, Fuwa’s new flagship has become the most talked industrial facility in the world.

“The vice president of quality in Taishan works for both Fuwa and AXN, and a lot of our team have spent some time in China to set up the place, so we basically consider it our own factory,” says Sharkey, who goes back and forth between Kentucky and China, with the rest of his leadership team, to ensure alignment between FUWA and AXN in production, quality and product development.

“It is a common misconception that we import a Chinese standard product,” states Steve Miller, Vice President of Engineering for AXN. “We don’t just bring over a Fuwa axle and put our name on it, but go through a complex design process. Although the production itself is offshore, we make sure that everything is designed according to North American industry standards.”

In that sense, AXN is anxious to avoid any intellectual property conflict. “The last thing we want to do is get ourselves tied up in a legal situation. Sometimes a US patent has not been registered in Asia, so we have to check if a design could create a patent conflict in the local market. We respect people’s IP and expect the same from the competition. Even if there is a way around a patent issue, we will avoid any grey area.”

The third requirement, according to Miller, is making sure a product is built to AXN’s internal quality standard. “We know the competition, and therefore we know that we cannot take a shortcut in the manufacturing process if we want to be a serious contestant. But since we helped design the facility and control systems that are currently in place, we are very self-confident in that regard. We also perform a regular benchmarking test against the competition to make sure that we at least stand at parity.”

Before the official launch of the brand, the AXN team spent a whole year testing and developing the portfolio. “No enterprise will fully insource or outsource offshore,” says Sharkey. “We soon realised that a certain percentage of work, especially in regard to the individual specification and the design work, has to be done in the US. But we learned our lesson.

“Today, our 8,650 m2 facility in Kentucky is not only a warehouse, but also accommodates a workshop to perform the final assembly and welding, kitting and packaging.”

When the formed one-piece beam hit the US market, the brand was finally able to tap the true power of the Asian parent – the product was not only competitively priced, but supply was almost limitless. “Based on 40 standard models, we can offer some 300 different configurations,” he says. “Just to meet domestic demand, we stock about 8,000 axles as standard. In a constrained market, the ability to deliver on demand is crucial.”

According to Jeff Hyatt, AXN’s Vice President of Sales, the recent market shake-up has not only caused erratic fluctuations in purchasing behaviour, but also changed the product portfolio itself. “Take the OEM sector – the majority used buy axles from people like us and then assemble them in-house, but since a lot of trained people have been set off, they have changed to buying dressed axles instead,” says Hyatt. “That’s a new reality and we have to be flexible enough to meet the demand.”

Such flexibility in reacting to a changing business environment does not only show that Louisville and Taishan have found a way to utilise the idea of offshore insourcing, but that the novice has reached the end of the start-up phase.

“Now we have to prove that we can be a solid company and make sure that our clientele will recognise the long-term benefits of using the AXN product,” says Sharkey. “We’re so new and young there’s almost nowhere to go but up, but what we really want is become the most respected supplier in the industry. And since a privately owned company doesn’t have to look at quarterly results, we can solely focus on what our customers want to get there.”

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