Spina Dental-Medical :: News archive

26-02-2008
There are many issues that are affecting vinyl glove production and costs in China. Below is a summary of some of the key factors that are driving these issues. Production/Shipping Issues 1. Implementation of New FDA AQL regulations a. Starting in December, 2008, AQL levels on Examination gloves will be lowered from 4.0 to 2.5. Factories are implementing new manufacturing tolerances to meet this new standard. This will ensure sound production ability prior to Q4; enabling them to continue to ship Medical Examination gloves to the US. The downside of this is lesser efficiencies on their manufacturing lines (more rejects), and ultimately, a thicker glove. Therefore, their ability to meet production quotas is strained and they will be using 10% - 15% more raw materials in the glove, further increasing costs. 2. Increased Scrutiny by Customs a. Due to the issues with some of the imported toys this past holiday season, customs appears to have increased their inspection levels on Chinese goods. More products are being held for inspection, thus slowing down deliveries. 3. Weather/Chinese New Year a. Recent storms have virtually stopped all travel within the Eastern and Southern Provinces in China, including the port city of Shanghai. Added to that delay, Chinese New Year is upon us. Therefore, very little will be shipped from January 28th to on or after February 12th. At that time, the factories will begin production and normal shipping patterns should resume, but it will take the factories at least a few days to get their machines up and running properly. All in all, there will be about 2-3 weeks of production/shipping lost. 5. Labor Issues b. Due to the Chinese economy growing over 10% a year for the last 5 years, the amount of jobs created continues to rise. There are more job options for the “blue collar” workers, and this is putting a strain on the factories’ ability to hire, retain, and develop workers. The glove factories, are struggling to maintain a consistent team, which is causing slowdowns in both manufacturing and packaging. Cost Issues 1. The price of Oil: c. As you know, the price of petroleum has risen over 55%, from a level of $60.00 to $95 per barrel in the last year. The implications of that rise are the following: i. PVC is a petroleum derivative; therefore, the raw material costs involved in the manufacture of a vinyl glove have increased at a high rate. ii. The cost to transport goods from China (Ocean Freight) and from our distribution centers (LTL, Truckload) has increased due to higher fuel costs. 2. Exchange Rates d. The US Dollar has decreased in value versus the Chinese Dollar (the Yuan) by over 10%. When we purchase goods from Chinese manufacturers, we can buy 10% less today than a year ago for the same goods. For instance, if a case of gloves purchased on January 1, 2007, costs $100; then, if nothing changed as far as the raw materials, etc, (which we know not to be true) that same case, purchased today, would cost approximately $110. 3. Reduction in the Value Added Tax rebate e. This was reduced from 11% to 5% in 2007. It is predicted to be eliminated in 2008. This rebate added to the profit margins of the various factories. Once it was reduced / eliminated, prices needed to rise to make up for the lost margin. 4. The Chinese Government f. They are putting pressure on their manufacturers to become more environmentally friendly prior to the Beijing Olympic Games. This is causing some major investments into the factories, therefore, causing increases in costs. g. The have also been pushing for better working conditions, including the introduction of some level of insurance for the factory workers. That increases labor costs, which drive up the overall manufacturing cost.

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