Cynaps has been locally designing and manufacturing electronic access control since 1989. This article will focus on our belief that South African companies have the necessary ingredients to bring internationally competitive products to market. As far back as 1994 our Shepherd System won the top product in its category at IFFSEC for an integrated building management system incorporating CCTV, access control and alarm monitoring.
I will set out the ingredients necessary to bring competitive products to market. For each ingredient I will attempt to rate South African companies’ ability to compete globally (on a scale 1 to 10, with 10 being top), and include representative costs for each line item as a percentage of the total with an indicative line item cost before ready for market. This article is based on a production run of 5000 units.
Product design: R2.2Million
* Electronic engineering for the PCB design: 10, resource constraint R240 000.
* Software engineering to enable the product to perform required function: 8, resource constraint R1,6 million.
* Housing design, engineering and industrial: 9, resource constraint R200 000.
* Packaging design: 9, resource constraint R180 000.
Summary: We have world class engineers who have the tools and development platforms that are used internationally. The only problem in this area is the resource constraints, ie, capital to cover the salaries of high-risk development and engineers who are qualified and highly sought after, and usually relocate to where they feel safe and have great earning potential. These employees are therefore hard to find and retain and due to the demand for their skills on a global scale.
The ingredients are typically 65% of selling price to meet market price.
Electronic: Cost ±R5 Million @ R1000 per unit
1. Electronic component sourcing: 6.
2. Electronic component input cost: 4; local suppliers add margin but not value. MOQ and EOL are the big challenges.
3. PCB manufacture: 9; capability is here but for high-density and high quality but mostly manufactured in the Far East and then imported. Once again the importer adds mark-up with little value add.
4. Assembly: 9; the local assemblers have world class equipment for pick and place and inspection of SMD, but the unit cost for parts requiring labour are not competitive with eastern manufacturers due to our labour productivity vs. cost.
Summary: This aspect of the business is like nailing 'jelly to the ceiling'. The local distributors are not interested in small volumes and therefore penalise local manufactures with small volumes by charging exorbitant prices. You can procure components on line for 30% of the price that local agents charge. MOQ (minimum order quantity) adds to total end product selling cost so if you do not have the volumes, then the cost of excess procurement is built into your product.
Housings: R300 000 plus R65 per unit x 5000
1. Manufacture of the tooling for injection moulding: 7, R300 000. Local companies have the ability and equipment, but due to the few players in the market the input cost is ±50% higher than offshore and the time to build the tools is 600% more than offshore. We have had tooling done in Taiwan within eight days of them receiving the 3D models vs. 12 weeks locally. The upshot of this is that many local products are placed in off-the-shelf boxes and look like 'school lunch boxes' with a cut-out for an LCD display. The unit price once the tooling is done is competitive, but there is an imported component for the plastic which is exchange rate dependent. Most Eastern fabricators will not consider running the tool for less than 10 000 pieces per run.
Summary: Cynaps has decided to continue with local tool manufacturers as this is an expensive and long process so you need to be in close proximity, especially during the design and first-part runs.
Packaging: R150 000 plus R18 per package x 5000
The packaging comprises the box that you put the product into and the insert/tray to hold the product in place in the outer box.
Package design: 8, R30 000.
Printing plate manufacture: 9, R50 000.
Box manufacturing: 10, up to R15 per typical unit in low volumes.
Moulded pulp tool design: 2, R45 000 to R200 000.
Moulded pulp part manufacture: 2.
Unit price: 8, typically R3 per unit.
Summary: The major consideration here is that very expensive machinery for high volume runs is used at this stage of production. The outer box manufactures have to stop and set up a machine which may be producing 100 000 egg box trays per day to run your job of 5000 parts. The same applies to the outer box manufacture and printing. The last product we ran of 5000 outer boxes required over 1000 sheets through the process just to set up the machine.
Table 1 shows that to have 5000 widgets on the shelf ready for market you are in for ±R8 000 000 before marketing and distribution costs.
This then leads onto the business end of the discussion. Firstly, product manufacture is a numbers game focused on higher volumes, more channel power and lower unit cost. The only way to get the numbers up is to build a reputation for proven and competitive products in your own back yard before exporting. In this regard it is essential that the public sector walk the talk regarding job creation, building export capacity etc.
The government, being the largest product and procurement sector in the economy, continually places orders for imported products which results in the only enrichment being for the importer who often has very little product knowledge or support capacity and creates very few meaningful jobs.
This is made worse by the inbuilt notion of technological obsolescence, where the importers with little product knowledge, who now have to maintain the equipment sell the end user on the need to upgrade to the latest technology. So every three years more money is spent with little or no real measurable benefit.
Over 25 years in the design and manufacture of electronic access control, the only changes have been the move to contactless smartcards, improvements in reliability of biometric sensors and more 'eye candy' on the user interface. There are new trends each year (integration, video analytics, data mining, dynamic profiling and so on), but the underlying technology stays the same. So many of these buzzwords are like 'putting lipstick on a pig'.
To wrap up, we have the people, capacity, technology to be very competitive, but what is lacking is access to venture capital and the commitment of the public sector to buy local. Cynaps has been fortunate in having the support of a large parastatal for 18 years and from this base has shipped and installed over R300 million worth of our products.
If all tenders were awarded preferentially to any company with a high local design and manufacture contact – subject to being technologically equivalent – the whole industry would be invigorated and off of this South African companies could build our export markets.
© Technews Publishing (Pty) Ltd | All Rights Reserved