IWF Seminar Examines Profitable
Ways to Outsource
Being competitive in todayâs tough global marketplace requires a regular review of all manufacturing processes, including determining whether some production should be outsourced. Outsourcing can make sense for many wood products businesses. Determining which products offer the greatest opportunities for outsourcing to improve productivity and profitability is a key decision.
Outsourcing used to mean buying from local or domestic suppliers. But, today, it can mean buying products from global suppliers as the term âoffshoringâ indicates. Rising material, production costs and global competition have made manufacturers in all industries work harder to keep costs down. One of the best strategies for cost control is outsourcing some part production to specialists.
Due to a strong interest in outsourcing among woodworkers, the Wood Component Manufacturers Assn. cosponsored a seminar, âProfitable Decision-Making When Outsourcing Components & Products,â at the recent International Woodworking Fair in Atlanta. The seminar was attended by nearly 300 woodworkers who wanted an update on the latest trends in outsourcing components and products.
A panel of experts, each with more than 20 years of experience in the wood products industry, shared their thoughts and experiences on outsourcing and offshoring. They outlined the characteristics they look for in a supplier and how they develop relationships to make their partnerships work. The panelists also discussed how outsourcing has benefited their companies, as well as some of the pitfalls to avoid.
The seminar was moderated by Steve Lawser, executive director of the WCMA.
Rich Christianson, associate publisher and editorial director of Wood & Wood Products, presented the results of the latest outsourcing trend study (see related story). He noted that outsourcing and off-shoring can only be expected to become more important tools for North American wood products manufacturers to use to remain globally competitive.
Reed Felton, president and COO of TJ Hale, discussed how his company outsources various components for his store fixture units from a wide variety of suppliers, including China. Most of the components TJ Hale outsources are made of metal, glass and other non-wood materials that the company does not have the capability to make in-house or find domestically for a lower price.
Walt Gahm, vice president of manufacturing of Kitchen Kompact, detailed how his company outsources 100% of its components for final assembly and finish at its Jeffersonville, IN, plant. Gahm discussed how his company relies on dependable companies that have supplied them with quality components made to their exact specifications. Kitchen Kompact has formed long-standing relationships with its key suppliers for their mutual benefit, noting that reliability and dependability are more important than just price. Gahm also explained how his company-wide employee incentive plan has motivated employees to achieve very high levels of productivity.
William Smith, CEO of Fuller Architectural Hardwoods, discussed how his company uses high-quality components from outside suppliers to help produce its distinctive line of architectural millwork products. Smith indicated that product quality and time of delivery are critical factors when choosing a supplier.
Dave Groom, international manufacturing specialist for the furniture industry, has extensive woodworking experience, which has included an active role in outsourcing from both domestic and global suppliers for several leading furniture manufacturers. He provided a historical account of Universal Furniture to illustrate the evolution of the global furniture industry and outsourcing.
2006 Study Highlights
The following subheads and bullet points, plus the accompanying charts, highlight findings of the 2006 outsourcing study.
â¢ One-quarter of respondents primarily manufacture residential cabinets.
â¢ Nearly three-quarters of respondents work in companies with less than 50 employees.
â¢ All U.S. geographic regions are represented in this study, as well as Canada.
â¢ Sixty-two percent of respondents are W&WP subscribers and 38% are CWB subscribers.
â¢ Sixty-two percent of North American woodworking professionals
currently outsource components, primarily from the U.S. and Canada.
â¢ Woodworking professionals estimate the dollar value of wood component parts they purchased in the last 12 months as $901,069, on average.
â¢ Half of woodworking professionals indicate the top reason preventing them from outsourcing more/any components is because they want control over production.
Top 10 Reasons for Outsourcing Components
â¢ Outsourced components cost lessâ¢ Do not have the manufacturing capabilities or spaceâ¢ Take advantage of othersâ expertiseâ¢ Increase productivity and efficiency
â¢ Save time to focus on more important things
â¢ Reduce capital expenditures
â¢ Better quality
â¢ Reduce inventory and overhead
â¢ Concentrate on product development
â¢ Expand variety of products
â¢ On average, North American woodworking professionals manufacture 58% of their wood component parts in-house.
â¢ Two years from now, woodworking professionals estimate 68% of their wood component parts will be manufactured in-house.
â¢ Drawer fronts (53%), plywood parts (49%), cabinet doors (47%), drawer boxes (47%) and drawer sides (46%) are the top five wood components that woodworking professionals manufacture in-house.
Top 10 Reasons for Producing Components In-house
â¢ Control quality of product
â¢ Produce one-of-a-kind custom products
â¢ Products too specialized to outsource
â¢ Use existing capacity
â¢ Quantities too small to outsource
â¢ Lead time required to outsource
â¢ Capability not available outside
â¢ Less expensive to make in-house
â¢ Difficult to find quality sources
â¢ Lack of reliable sources
U.S. and Canadian Component Suppliers
â¢ On average, North American woodworking professionals purchase 34% of their wood components from U.S. and Canadian suppliers.
â¢ Two years from now, woodworking professionals estimate 37% of their wood components will be outsourced to U.S. and Canadian suppliers.
â¢ Cabinet doors (53%), mouldings and millwork (53%), drawer boxes (42%), solid rounds and dowels (36%), and drawer fronts (33%) are the top five wood component parts outsourced from U.S. and Canadian manufacturers.
â¢ Consistent quality (49%), good relationships with suppliers (49%) and better control over costs (48%) are woodworking professionalsâ top reasons for buying component parts from U.S. and Canadian manufacturers.
â¢ Product quality, price and dependability of supplier are the most important factors to woodworking professionals when selecting U.S. and Canadian suppliers.
â¢ The Internet (75%), trade journals (68%), trade shows (68%) and buyerâs guides (62%) are the top sources woodworking professionals are likely to use when locating potential U.S. and Canadian suppliers of wood.
Foreign Component Suppliers
â¢ On average, North American woodworking professionals purchase 7% of their wood component parts from foreign suppliers.
â¢ Two years from now, woodworking professionals estimate 30% of their wood components will be from foreign suppliers.
â¢ Mouldings and millwork (23%), solid rounds and dowels (21%), plywood parts (19%), stair spindles and newel posts (14%), and turned table and chair legs (14%) are the top five wood component parts outsourced from foreign manufacturers.
â¢ Price (37%), better control over costs (28%) and the ability to add new products (19%) are the top reasons woodworking professionals buy component parts from foreign suppliers.
â¢ Product quality and price are most important to woodworking professionals when selecting a foreign supplier of wood components.
â¢ The Internet (42%), agents and brokers (37%), trade journals (37%), trade shows (37%) and buyerâs guides (35%) are the top sources woodworking professionals are likely to use when locating potential foreign suppliers of wood.
Rough Mill Use
â¢ Slightly less than one-quarter (24%) of woodworking professionalsâ companies have their own rough mill; an additional 4% say they plan to add a rough mill within 12 months.
â¢ Among those who currently have a rough mill or plan to add one in the next 12 months, 56% would consider purchasing components from outside suppliers if their rough mill reached full capacity.
â¢ Among those who would consider purchasing components from outside suppliers if their rough mill reached full capacity, 94% would most likely purchase from U.S. and Canadian manufacturers.
â¢ Slightly over three-quarters of woodworking professionals do not anticipate expanding their rough mill capacity within the next two years.
â¢ On average, woodworking professionals indicate that their companiesâ gross margin is 21%.
â¢ Woodworking professionals indicate an average 12% return on equity for their company.
Read the Full Report
The entire report is available on the WCMAâs Web site at no cost. To access it, log onto www.woodcomponents.org and click the NewsFlash section.
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