Today’s issue of Manufacturing News has a couple of articles on U.S. furniture manufacturers "succumbing to cheap imports." Two specific companies are profiled: Moosehead Furniture and Golden Ratio Woodworks. Apparently the "golden ratio" is 1:1.618 and describes any number of natural objects such as the petals on a rose and spiral nebulae. But apparently it doesn’t guarantee an understanding of manufacturing.
On February 8th Moosehead told all 126 employees to find a job elsewhere. Moosehead used to have 105 employees and now it has none. The reason?
The U.S. furniture industry can’t compete with Asia.
After Katrina foam prices in the U.S. doubled.
Fuel prices have gone up.
The currency is rigged.
Large stores buy their furniture in bulk from overseas.
It’s our labor and health care costs.
I could go on with several more quotes from the articles, but you get the picture. Wah wah wah. It’s not to say those aren’t valid concerns, but they are naive to believe that those "competitive burdens" are forcing them out of business. Ignorance, intentional or not, or a simple lack of passion and desire is what destroyed their companies.
Moosehead Furniture president John Wentworth demonstrates a particular penchant for blaming evil outside forces:
In our situation, we considered outsourcing to China, but we’re a relatively small company with 250 employees at our peak a few years ago. Our problem is we’re not a sales and marketing company. We’re manufacturing.
I have to think about that a bit just to grasp what he means. It sounds like he considered outsourcing just for outsourcing’s sake… a lemming. But for some reason he wasn’t confident in the sales and marketing aspects of that potential decision? The interviewed then asks Mr. Wentworth how bulky and heavy furniture can be manufactured in China from lumber imported from the U.S. and Canada, and still be delivered cheaper back to the U.S. Yes, of course it has to be labor cost.
But labor costs to make a piece of furniture there is 20 cents an hour versus an average of $10 to $11 for regular labor in this country. Plus you have to add the cost of health care, which is approximately an extra payroll a month.
Anyone that believes labor cost is truly a competitive burden needs only to look at American Apparel, a company that is very profitable making low margin low tech t-shirts at a factory in Los Angeles while paying above market wages… many times that of competitors who operate in south east Asia. And Moosehead is in the higher end specialty furniture business where margins should be considerably higher.
Did they try lean and six sigma? Yes, at least in their own minds.
We’ve been lean for years. We only assemble and finish what is to order. We don’t even inventory packed goods. We inventory some parts but you won’t find much wood in our factory. It’s our labor costs and health care costs — plus, there are no regulatory costs overseas that we have here.
Sorry. I don’t buy it. Why? Because contrary to the one-sided bent of the article, there are furniture manufacturers, both high and low end, competing successfully from U.S. factories. We’ve written about a couple of them, such as Stanley Furniture, La-Z-Boy, and Vaughn-Bassett. Stanley deserves special mention as they are battling a bunch of Wall Street investors convinced they must outsource to survive.
Wall Street analysts were apparently challenging him to join most of the furniture manufacturers in the US in their exodus overseas. Company spokeswoman Robin Campbell said Stanley "does not anticipate using layoffs or reduced work weeks to cut production costs". Instead, Stanley’s plan is to get lean. They hired a veteran lean guy named Rick Lovorn from Masco to run their four manufacturing plants. Scheffer says "Stanley will compete by offering furniture customers want, speedy delivery and products of high quality". They’re gonna "ramp up efforts to adopt principles of lean manufacturing, focusing on ways to monitor efficiency and continuously improve production".
It’s paying off. Just three weeks ago they reaffirmed their commitment to domestic manufacturing.
Quick shipping means retailers do not have to keep an inventory of furniture, Scheffer said, and because products are made and inspected here, retailers do not have to repair damaged pieces. Prompt deliveries also adds value to Stanley furniture, Scheffer said. “If we tell you something will be shipped on Friday, it will be shipped Friday. That is difficult to do when your supply chain begins on the other side of the world.” Customers are willing to pay more for speed of delivery, value and quality, he said, adding that Stanley believes its domestic facilities give it a competitive advantage because they are located near the company’s customers.
That’s a real commitment to lean and to the customer. So next time you hear of some company complaining they can’t compete and may have to shut down, tell them to first take a look around their industry. I’m betting they’ll find a company that has learned about value is different than a simplistic accounting perspective on cost. If that doesn’t work, tell them how pathetic it is that a low margin labor-intensive t-shirt company can be competitive domestically when they can’t.
It’s a reflection on leadership competency, management knowledge, and commitment. Unfortunately it’s too late for the furniture workers at Moosehead and Golden Ratio.
Lean Advise Panel says
Excellent Post! Most companies actually think the hourly rate + benefits advantage some countries have over others are enough to make a real competitive difference when its wastes in the work culture and/or process that differentiate a successful company from a used to be one.
Chris Tye says
Once again spot on & a sad indictment of the current level of understanding of manufacturing costs.
Womack & Jones put very succinctly in their latest book what has often been demonstrated in this blog:
They said something like:
“many people in business will concentrate on the hourly labour rate, which is missing the point. They should really be concentrating on the number of hours it takes to make”
(forgive my slight misquoting I dont have the book to hand… its in the chapter about call centres somewhere)
Hourly labour rate has it’s place in the metrics to consider, but I feel that process efficiency is most important. If you can make a process more efficient so that a person can make 20 widgets a day instead of 15 widgets a day you’ll be adding substantial operational savings.