FASTENER TRADE SHOW SPEECH--by Mr. Timothy O’Keeffe, Vice President of G.L. Huyett

Thank you for inviting me to speak to such an esteemed group of industry leaders. I thank the China Fastener Trade Show staff, and the China Fastener Info website for the invitation. I also want to thank the Chinese people for their presentation of the 2008 Beijing Olympiad. The World certainly knows better the greatness of the Chinese nation. The World better recognizes the uniqueness and diversity of Chinese culture. And there has been developed a far greater admiration for the Chinese people. As a father of five children in the USA, I thank you for giving my children an up-close look at such a great nation as part of a greater celebration of peace and goodwill for which the Olympics stand. Thank you.

This evening, the purpose of my comments are to offer you some insight into the nature of my firm and its market orientation; to reveal to you the mission of my attendance at this fine event; to describe market opportunities that mutually await us; and finally, to describe some industry-specific process improvement opportunities that would enrich the trade between us.

G.L. Huyett is a manufacturer, importer, and master distributor of non-threaded fasteners located in Minneapolis in the State of Kansas. We are in an agricultural region known for grain and wheat production, very near to the geographic center of the United States. We offer some 100,000 unique and different inventory items to the industrial fastener distribution market all over North America.

We have 4,000 distributor customers, of which 3,000 buy from us on a regular basis. These customers fall into a few defined market niches. “MRO” customers typically are engaged in the business of plant maintenance, machinery repair, and provide support services to manufacturing facilities. “VMI” customers provide our parts, as well as threaded parts such as bolts, nuts, and screws which all of you are quite familiar with, on a just-in-time basis to original equipment manufacturers. The balance of our customers are industrial distributors who warehouse and supply small tools; power equipment; and safety equipment such as eyeglasses and gloves to industry.

Our presence within these customer bases is to provide a one-stop-shop of difficult-to-find parts “off the shelf” (from stock), and to offer emergency services for small and short run prototypes. Because of our ability to manufacture, we provide a great deal of special order and produced-to-print parts. We have a complete machine shop to manufacture special order items.

The type of parts that we import from China and other places in the world fall into two distinct groups--standard items that typically are cataloged; and single item long run special orders that are made to customer specifications. Standard items usually involve several hundred or more different parts within a product line. Most of the production runs among standard items are produced in lots of 10,000 to 100,000 pieces at a time. We typically buy these items in a full container purchase order. In other words, we submit a purchase order to the supplier in a 20 ton increment and ask that the order be shipped together in one release. Such action saves us on freight and logistical costs, as opposed to issuing multiple orders for consolidation.

Special order items typically involve longer production runs of 100,000 to 1,000,000. These items are usually ordered in one release and depending on the supplier, are ordered separately on a unique purchase order. The unique order may require consolidation with other orders, or in rare instances, have to be shipped to a consolidator for economic transportation to the USA. We use ocean freight as opposed to air freight unless there are significant emergencies. Our parts possess a low value to freight relationship and the commodity-like nature of the market for these items does not allow us to capture air freight costs in our margins.

Let me also note that we import raw material for our manufacturing operations. We primarily buy cold finished bright bars in square and flat form to DIN 6880 tolerances. We purchase such material in 20 ton containers, typically with not less than one ton per unique size. You all need to know that we are actively pursuing suppliers of such material as part of this trade mission and I appeal to any of you who produce bright bars in squares and flats to precision tolerances to contact me after this discussion.

We anticipate our purchases in the next year to total about US$6 million among Asian-Pacific Rim suppliers. I am at this Show and in your great country looking to improve relations with existing suppliers; to find capable and cost effective suppliers of existing products; and to explore new item opportunities with new suppliers. I am especially interested in this trip in finding wire formers that can support our cotter pin and wire forms product line; cold headers that possess cross drilling capabilities to support our clevis pin line; assemblers that can assist us with more highly engineered products such as tractor pins and pins that possess a self-locking mechanism; and metal stampers that can support our line of flat washers. Two specialty and non-related lines include the cold finished bright bars, as previously mentioned; and grease fittings.

This is my third trip to China. We have purchased goods from China for about six years. I anticipate that our purchases will continue to increase, subject to business conditions in China as compared to elsewhere in the world, and a continued improvement in the quality of parts and quality of execution of timely orders by Chinese suppliers. This show provides an outstanding venue for suppliers and potential customers to gather together in one place. Such gathering is far more efficient than making multiple factory and geographic visits. I appreciate the focus of show organizers in making this show uniquely a fastener-oriented event. I encourage all of you to continue to support this show and participate and through time you will find that the value of the experience will increase for your respective firms.

For companies in China looking to export industrial fasteners to the United States, it is important to recognize some of the differences between the two countries. The United States is a consumer-driven society as opposed to what I see as producer-driven societies in other parts of the world. In a producer-driven society, producers typically mandate the buy/sell rules. Consumers (customers) in producer-driven societies are motivated to purchase quantity of product, because there are typically more consumers than there are producers. In this model the producers are motivated to sell as much product as possible at the lowest possible price. The producers organize their production based on the availability of inputs and the efficiencies at which they can produce product. Typically the transactions that occur in a producer-driven society are governed based on product price, with a lesser regard for on-time delivery; precise packaging or labeling; in some cases product quality. In producer-driven societies you usually see more people waiting in line to buy product; you see less emphasis on product differentiation and service; and product quality tends to be no more than average.

In consumer-driven societies the customer mandates the buy/sell rules. Consumers will purchase products based on other perceived values than just product cost. Consumers expect product to meet or exceed standards of quality and returns are considered out of the ordinary and not acceptable. Consumers will rarely stand in queues and some consumers actually prefer higher priced goods because they are perceived to have higher quality, even if such higher quality does not actually exist.

Chinese manufacturers who recognize that the United States is a consumer driven society will have the greatest opportunity for export. The most successful exporters in the industrial fastener marketplace will be ones who:

1. Never ship non-conforming product.

2. Recognize and manage non-product costs.

3. Manage the production floor based on what customers want to buy, as opposed to what is the easiest to make.

Manufacturers who adopt these tactics will ship the correct parts, in well-labeled and secure containers, on time and in the precise manner that the customer requests. In order to demonstrate the precise non-price demands and opportunities that our own customers expect of G.L. Huyett, I wish to share with you today a copy of the Pack List that we use for shipments to our own customers in the North American market. A copy of the Pack List is displayed on the video screen and I have extra copies of the Pack List here at the podium.

Please note that the Pack List defines for our customers their own and unique part number; their own purchase order number; and the precise container that the item was shipped in is identified to each item in the shipment. All of the important information is bar coded so that the customer may scan such information as opposed to writing, typing, or printing it. This Pack List saves the customer time in receiving our orders. Less time equals less cost. In closing, I want to once again thank you for this opportunity. I appreciate your hospitality and I am humbled to stand in front of such an accomplished group of world class business leaders. Thank you for supporting this event and I look forward to our mutual opportunities in the days ahead.