If you’re a regular reader you know by now how ridiculous outsourcing can be. Traditional accounting methods that value brains as a simple set of hands and discount supply chain and quality risk can make fleeing to a "low cost" labor country appear advantageous. Fortunately some business people are more grounded in the real world and understand the hidden costs of outsourcing, and the opportunity of charting a new path. Oly Welke and Andrew Hedreen of Strasser Woodenworks are two such enlightened executives.
Half a dozen years ago Strasser Woodenworks executives saw the writing on the wall, and the writing was in Chinese.
The world was changing around the small Woodinville maker of bathroom cabinets, and it was beginning to look like the company would have to move all its production to China.
Every time President Andrew Hedreen went to a trade show, the buzz would be about cheap Chinese labor and the inevitability of outsourcing.
Like any smart executive, he looked into the situation.
So early in 2002, Vice President of Sales and Marketing Oly Welke traveled to China for about 12 days, visiting five cabinet factories as well as suppliers.
He went there almost assuming that he’d find a place to make cabinets in China, and thus would be ending two decades of cabinet-making in Woodinville.
But then unlike most Fortune 50 execs he actually crunched some numbers.
But then he started crunching the numbers. And the surprises started.
“What we found out, looking at the numbers, was that at the end of our line out there, our cost of producing product was not that much more than importing it and taking it out of the container,” Welke said, pointing to the loading docks of the humming factory. “When you add in extra warehousing to import your product, the difference wasn’t great enough to get excited about.”
And the company had the guts to take a different path.
So Hedreen and Welke reversed direction, and drove the company forward on the premise that Strasser could compete with U.S. importers tapping Chinese manufacturers, and with Chinese manufacturers exporting on their own.
One big element in Strasser’s survival and growth has been its full embrace of lean manufacturing, which has squeezed waste out of the production process and kept costs down.
The lean efforts paid off, and rather quickly.
Already machines have been re-arranged to make manufacturing cells,
inventory has almost been eliminated, and quality is being driven up so
there are fewer flawed cabinets. Just in the last year, overtime has been reduced by 56 percent, as
they learn to operate more efficiently. Unit labor — the cost of labor
for one unit — has been cut 25 percent since 2002. Final production is
so efficient that cabinets never touch the floor, but each day move off
final assembly to wrapping, then directly into three waiting trucks.
There’s nothing on the loading dock at the end of the day. New products
go to market in four months, down from a year.
Not too shabby. But lean was only one part of the competitive equation. The other part was to leverage the advantages created by lean into a new business model.
The other half of the equation was Strasser’s unusual business and marketing model, which Hedreen and Welke have been refining constantly, to squeeze all the advantage they can from it.
Strasser makes only high-end cabinets, generally crafted of solid wood and increasingly with stone tops, so buyers are willing to pay a little more.
Every single cabinet is made to a customer’s order, and while the cabinets aren’t custom-built, they are assembled from a wide array of standard options.
The company’s market is almost entirely renovations, which means that buyers are willing to wait the two weeks it takes to get a special-order Strasser cabinet made and delivered from Woodinville, but not the three months it would take to get one from China. Most Chinese-made cabinets are stock items, with more limited options.
The strategy has paid off.
Last year the company was surging, with revenue up 30 percent, to a
company record of $10 million. The number of employees rose also, to a
record 60 workers. But because of lean, the managers have been able to
shoehorn the growth into the current facility, just 30,000 square feet.
Hats off to Strasser. Now who was the guy that said furniture makers couldn’t compete with China?