Scott Nelson, owner of Central Plains Millwork Inc. of Lincoln, NE, is also the reigning president of the Architectural Woodwork Institute. The AWI, based in Reston, VA, has more than 2,800 North American members, including not only woodworking firms, but also industry suppliers and affiliates. The association is celebrating its 50th anniversary this year.
Wood & Wood Products recently interviewed Nelson to get his take on the North American architectural woodworking industry's successes and challenges.
Wood & Wood Products: How is business for your industry?
Scott Nelson: AWI's staff is constantly in touch with the membership, either through telephone calls initiated by the members for AWI products and services or through personal visits and trade shows. During each opportunity a staff member talks to a member or prospective member, we try to gather industry data regarding backlog, bid activity, etc.
In general, the response from woodwork manufacturers has been mixed for the last three years. There are portions of the country where woodwork manufacturers are struggling to get enough work in the door to sustain their overhead and many are accepting contracts at cost or in some cases below cost. In every situation, though, we are consistently told that the bid market is extremely competitive and that, even when a contract is awarded, it is not unusual for that contract to be delayed for months, even years, and in rare situations, cancelled altogether.
Apart from our ongoing efforts to take the pulse of the industry, AWI conducts an annual Cost of Doing Business Survey. Among the "high profit" member manufacturers who responded, we found that operating margins dipped from 9.46% last year to 8.08%. Projections in the final report revealed a more conservative business climate compared with the year before. Manufacturers are projecting 7% employee growth in 2004 compared with a 9% projection last year for 2003. The final report also indicates a decline in expanded manufacturing space, with 17% projected for 2004 compared with a 22% projection for 2003.
Other financial benchmarks reveal the effects of market realities and the overall economy. AWI's Cost of Doing Business Survey and Compensation Study Report reveals gross margins at 20.0%, down from 20.3% last year, and operating margins at 3.7%, a dip from 5.1% the previous year.
W&WP: How are AWI members faring this year compared with last year?
Nelson: Our members seem to be struggling more this year than last. As noted above, this sustained period of slow to minimal growth is catching up with manufacturers who have consistently taken work at cost or below. The members whose work is diverse enough to include schools, hospital and other institutional projects; public work for federal, state and local government buildings; and high-end residential, have sufficient work to maintain their overhead.
Unfortunately many manufacturers are being squeezed from both sides with the increase in the cost of doing business. On one hand they face rising health and general insurance costs and have difficulty finding skilled labor. On the other hand, they face increased competition from companies whose market was mainly made up of tenant fit out work and are now bidding the only work available. One other anomaly is that the closure of many furniture manufacturers in the United States, especially in North Carolina due to foreign competition, is causing the start up of many small new woodwork companies. We assume these new starts are made up of previous furniture manufacturing employees.
W&WP: Are people doing business differently now in response to the general slowdown in the economy?
Nelson: Yes, as mentioned above, many manufacturers are accepting work at cost or below to cover their overhead costs. Also, these manufacturers are, in some cases accepting sub par insurance coverage and/or canceling benefits altogether. In the long run these decisions will affect their ability to continue doing business and to retain quality employees. AWI's survey revealed a 10% employee turnover rate, but that is unchanged from 2002.
W&WP: What is AWI doing for members to help them cope in this economy?
Nelson: AWI's Board of Directors has identified several critical issues which it feels will affect the woodwork manufacturer today and in the future. Health and general insurance costs, lack of a skilled workforce, foreign competition, small business management concerns, green certification, risk management and other related contract issues are among the top critical issues identified.
To address the lack of a skilled workforce, AWI has made education its number one priority program. Greg Heuer, AWI's director of member services, will focus the majority of his time on updating AWI's current Estimating, Project Management, Financial Management, Marketing and Sales Seminars, along with developing several leadership initiatives and a new regional educational program. The AWI Board of Directors has indicated to Greg that they would like to help our members improve their management and leadership skills in order to enhance their ability to succeed in this highly competitive and rapidly changing business environment.
Health care and general insurance costs, foreign competition, small business management and contract issues are too large for a small association, with limited resources, to handle alone so AWI has joined/partnered with the National Association of Manufacturers (NAM) and the American Subcontractors Association (ASA) to address these issues.
AWI supports NAM's initiative on improving the federal, state and local laws to support and improve manufacturing opportunities in the United States. NAM has recently authored a 'white paper' on manufacturing in the U.S. This 'white paper' identifies manufacturing as an industry that 'matters' in the United States because it:
- Leverages economic activity,
- Generates higher productivity,
- Stimulates workforce training and education,
- Provides rewarding employment,
- Yields higher salaries and benefits,
- Contributes to regional economic growth,
- Stimulates R&D leadership, and
- Encourages competitive pricing
AWI plans to encourage its membership to support the NAM initiative. AWI will do this through distribution of an executive summary of the white paper and full copy of the report on the AWI Web site. We are also encouraging members to work with local, state and national elected representatives to urge them to help strengthen the U.S. manufacturing base as well as encouraging our members to share the information with their employees.
AWI feels through partnership with NAM the association can help change the laws that allow the increasing costs of insurance, health care, and other costs of doing business, which contribute to the closure of many manufacturing firms in the United States today.
In addition to the partnership AWI has with NAM, AWI partners with the American Subcontractors Assn. to help educate woodwork manufacturers on how to combat unfair contracts that include risk transfer, paid-if-paid clauses, retainage and other unfair practices. On a regular basis AWI provides communications from ASA to help AWI members better understand the risks they take when they accept certain clauses in their contracts.
Finally, the "green" issue is mounting in its impact on our association. AWI is currently developing a position statement on sustainable forestry and wood products management and the related certification programs. We hope to have that completed by September 10, 2003.
W&WP: What specific issues are members facing today and how are they handling things like foreign competition? Is that even a factor for your industry?
Nelson: Foreign competition is affecting our members right now, mainly through changes in their suppliers. While many manufacturers don't realize it yet, they are purchasing products that are manufactured overseas. AWI is providing information on the issues that currently directly affect members while also trying to make our members aware that foreign competition is a reality and will only increase. We only know of one member that is currently manufacturing in the Far East, but that may change in the near future.
AWI is working to keep members apprised about resources provided through the Department of Commerce on how to export their products overseas. AWI encourages its members to constantly improve their ways of doing business and to attend as many educational and networking programs as possible to learn how others are improving their competitive edge.
Finally, AWI is working with NAM as it examines the huge dollar value variances with foreign competition. AWI's Board of Directors will study NAM's initiative on this matter during its September Board of Directors meeting.
W&WP: We are also interested in any legislative issues facing AWI members and other topics of interest to your membership.
Nelson: AWI does not have a lobbying effort in-house as our focus has always been on standards development, education, and marketing. We support our association partners like NAM, ASA and the American Forest and Paper Assn. to assist us with efforts that affect our members.
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