W&WP October 2002

ISWONLINE EXCLUSIVE Bonus Coverage of Oak Craft Inc.:

Career Transitions: From Steel to Wood

A Tale of Two Recessions

Saudi Arabian Experience

September 11 Shockwaves

Maple Surpasses Oak

On Not Going Natonal

Competition Heats Up in the Valley of the Sun

Phoenix’s hot housing market draws national cabinet manufacturers to Oak Craft Inc.’s home turf.

By Rich Christianson

Never mind the blistering summer heat. Year-round sunshine, more golf courses than a duffer can shake a full set of irons at and relatively cheap land prices have contributed to the greater Phoenix area’s housing boom.

Oak Craft Inc. of suburban Peoria, AZ, is one of the hometown cabinet companies to capitalize on the area’s latest development spurt. Year after year throughout the 1990s the company racked up new sales records and in the process regularly earned a place in Wood & Wood Products’ annual WOOD 100 Report of fast-growing woodworking firms. Oak Craft’s sales increased six-fold between 1990 and 2000, from $2.6 million to $17 million.

In recent years, the same strong home building market that propelled Oak Craft’s growth has served as a beacon to attract competition from national cabinet manufacturers, says Greg Johnson, marketing director of Oak Craft. “It seems like every one of the industry’s top 50 cabinetmakers has jumped in here and boosted their presence. Some have expanded their warehouses serving this market but not many have made a true commitment to the area.”

“We saw this same pattern in the mid-1980s,” Johnson says. “They’re almost like raiders. They’ll stay as long as the growth period lasts and then they’ll pull out.”

Regardless of what the majors do, Oak Craft managers have to operate with the knowledge that pricing is more sensitive than ever and that their company has to rise above the standard product offerings if it is to garner its share of business.

Big-Name Competition

Oak Craft has pursued a multi-pronged strategy to compete against much bigger national cabinet manufacturers. It includes implementing a lean manufacturing program to lower production costs, speed delivery and improve quality. Other components of Oak Craft’s defense strategy include offering more custom options, perfecting product finishes and working harder to maintain close relations with its approximately 25 dealers.

     
 
Raised panel doors in lighter tone woods characterizes the Southwest style to which Oak Craft largely caters.  
     

“Builders are becoming more full service, which has helped our business. About 20 percent of them offer home office furniture and entertainment centers. Their design centers show options that home buyers can build into their new homes.

“Fortunately we’re small enough that rather than follow a trend, we can jump well ahead of the curve and do things that mostly no one else does,” Johnson says. “Some of our bigger competitors got to where they are by researching and developing products. They raised the bar real quick and backed their efforts with millions of dollars. So we have to jump out and be a little more creative and flexible.

“You have to find the limits of your competition and go outside those bounds and that’s really the only way to survive. Then you have to back it up by keeping your commitments. Don’t over promise. Keep your customers happy and listen to them when they are not happy. That’s vital. That’s probably the least fun aspect of my job but if someone absolutely hates something we’ve done, then that’s the person that I really need to talk to.”

In an effort to out-custom its competitors, Oak Craft recently reorganized its production flow and added a custom production area. In addition to special-order cabinets, the custom area produces home office furniture and computer workstations that coordinate the kitchen cabinets. This gives Oak Craft an advantage against some larger competitors who “just want to throw boxes in the kitchen,” Johnson says.

The ability to furnish products for other areas of the home is becoming a bigger issue, Johnson says. “I would hate to be without it. You strip away our ability to do other rooms in the house and do add-ons, and we would be in trouble. We’re competing with companies that buy trainloads of lumber every day. We don’t have the purchasing power they have. The custom side of our business used to just be a fun part of our business. It is a tool that has truly become a necessity.”

“We can’t compete on price alone,” LeRoy Zachek, vice president of Oak Craft. “Offering things like special finishes and our custom department’s ability to build entertainment centers and bookcases are the kinds of things that allow us to compete.”

True Semi-Custom

Johnson says the term “semi-custom” tends to be loosely used in the cabinet industry.

“When you look through the kitchen and bath magazines, you’ll see photos of a finished showroom done by a mid-priced cabinet company that has recessed depth and increased height, plus crown moulding, excluded fillers and other custom trimmings. The difference between them and us is that to get those pictures, the installers had to do most of the hard work. For us, the installers unwrap the product and stick it on the wall. Nobody cuts down the back or has to layer all of the moulding. Nobody has to glue things to the corners. It all comes out of the box looking like that.”

     
 
Final cabinet assembly typically includes installation of Mepla six-way adjustable hinges and Grass slides. “The hinges can be easily adjusted to counter warping that occurs because the cabinets are installed before the homes are controlled for temperature and humidity,” says Mike Hightower, assembly manager.  
     

“To me, semi-custom is taking the things normally not found in the stock line and putting it into your daily production and ongoing repertoire,” Johnson says. “I know it sounds like an overused phrase, but if most people can draw it, we’ll build it. We like to experiment but we have to know our limits and know when to say no to a customer. We can’t do it all and we won’t do it all. If we try, we’ll be doomed to failure.

Johnson says Oak Craft borrows “great thoughts” from custom cabinetmakers. “We look at their exact milling and top-of-the-line finishes. We take their flexibility in terms of colors, sand blasting textures and distressing, and do it on a manufacturing scale. I think our greatest strength is taking the custom shop and putting it into a production mode because we still have to be volume-minded.”

On one hand, Oak Craft is expanding its finishes by adding a new finish with the burn through and some two-stage light and dark finishes. On the other hand, the company is backing away from some special requests. “We want to do what we can extremely well so our customers can count on us. There are some places we can’t go. If someone wants a crackle finish for instance, we’re not going to go there. We’re also not going to do book-matched veneers. God bless the custom shops that want to do that. They’ll retire early because the stress will get to them.”

As it is, Oak Craft offers about 15 standard finishes and a variety of custom finish options including color, sand blasting, light distressing and heavy distressing.

“We try to take production to a different level,” Johnson adds. “A lot of companies will try to show you how to stack kitchen cabinets and try to make it look like an office. We’ll do pocket doors, flush toe kicks and computer tray roll-outs. We’ll build the cabinet upside down and inside out to create the office for you and not just stack cabinets.

“Even our standard-drawer construction reflects attention to detail. The bottom is rabbeted into all four sides. It’s built for use and it’s built for abuse. In the 15 years I’ve been here, if I’ve had customers call to replace four drawers due to failure, I’d be surprised.”

The ability to offer more and more custom options has paid off handsomely with tightening relations with dealers. “Let’s face it, most salespeople don’t want to have to call 19 places to get something done. If you can call one that you know can get the job done, then that’s where you want to go,” Johnson says.

Leaner Production

Up until recently, Oak Craft had the capacity to manufacture 500 cabinets a day, all built to order. Through lean manufacturing and continuous improvement the company has its eyes set on bumping production up to 600 cabinets a day.

“Even when we reach our goal, we won’t sell to capacity,” Johnson says. “We’re always going to leave a little bit of a buffer there to balance the ups and downs and expansions and contractions. We want to be able to handle the rush job without upsetting other orders that are being processed.”

“We’ve been integrating lean manufacturing over the last year,” says Nasser Dadkhah, director of operations. He lays out five major goals of the program:

  1. “We want to shorten our lead times to seven working days. We’ve already gone from a high of 28 to 35 days to nine working days for regular cabinets and 15 days for custom.”
  2. “We want to reduce lead times with our suppliers so we can reduce our inventories.” He notes that the company uses kanban, a Japanese two-bin system in which a particular part or piece of hardware is replenished when one of the bins becomes empty.
  3. “We want to improve quality. We’re working very closely with our suppliers, particularly AKZO, our finishing supplier.”
  4. “We want to reduce rejects to lower our costs. We’ve already seen immediate improvement in this area.”
  5. “We want to continually improve on each of these areas by regularly reviewing any problems and getting input from all of our employees.”

Nick Wyzevich, materials manager, says, “We want to improve the quality of our employees and make them more responsible for everything they do. We also want to reduce our need to buy components.” A notable exception is a pair of rigid-thermal foil doors and some other specialty door and drawer front styles purchased from Decore-ative Specialties.

“Our ultimate goal is to reduce our costs and pass the savings on to our customers,” Wyzevich says.

Looking Ahead

According to the Kitchen Cabinet Manufacturers Assn., about three out of every four cabinets sold goes into a remodeled kitchen or bathroom. Oak Craft’s experience is just the opposite. About 80 percent of its business is with the home building market.

     
 
Custom cabinet door components are machined on a Unique raised panel door machine.  
     

“We’re going to see more remodeling here as homes get older, but I don’t think you’re going to see it go to 75 percent remodeling in my lifetime. There’s more undeveloped land in here than in all of Orange County. We’ve barely scratched the surface.”

Johnson notes that remodeling is “more intensive” from the dealers’ standpoint because “they’re doing one kitchen at a time.” That said, Johnson adds that remodeling fits the company’s lean manufacturing program. “Once we’ve done the drawing of the customer’s kitchen and run it through our computers, the project goes through here pretty easily. We’re simplifying our processes and coming out with more specific product sheets geared toward remodeling. In the next two years we’re going to start getting involved in local home shows, which is a fertile ground for remodeling. We haven’t done that before because we’ve been so busy.

“In three years I’d like to see us doing $20 to $22 million a year and 600 cabinets a day. I think remodeling will grow to about 30 percent of our business. Our plan is to create small, measured growth, as opposed to shooting for the moon and building a second plant.

“We don’t ever want to get to the point that we have to build 5,000 cabinets a day. Our purpose for being here is to provide the best product we can with the best lead time we can, at a competitive price and make the customer happy.

The decisions that we make affect so many people. We need to stay busy and make money. We need to support our dealers and we need to take care of our employees and give them a consistent life. If we hire and fire people based on buying market share and then letting it go, we’ve done everyone a disservice.”


Career Transitions: From Steel to Wood

Daniel Spitler and LeRoy Zachek started Oak Craft in 1983 to supply wood cabinet doors to Phoenix-area cabinetmakers. Prior to this, the pair had worked together for 10 years in Spitler's father's steel pipe business.

"Guildmark, a local company that made cabinets had just shut down. We saw an opportunity to not let their human talent go to waste," Zachek says.

Spitler says Zachek and he decided to make the jump from making cabinet components to cabinet manufacturing because "we thought there was more long-term potential. We had just geared up to mass produce doors when the market started to downturn. We only had a handful of customers and were kind of at their mercy. We decided that making cabinets would allow us to expand our customer base and give us better control of our own destiny."

Greg Johnson, marketing director of Oak Craft, was brought on board in October 1987 to help steer Oak Craft into cabinet manufacturing. His background included owning a small custom cabinet shop in the Chicago area and working with a couple of larger cabinet companies in the Phoenix area.

Johnson fondly recalls that Zachek delivered the company's first full set of kitchen cabinets in a horse trailer to General Homes at 11:30 at night. Installers then worked into the wee hours. "We had to have the cabinets there for one model to get the contract. The purchasing agent came out on Saturday morning and saw them installed and gave us an order for 200 houses. That was the launching pad for us."

Johnson says Oak Craft's managers considered themselves extremely fortunate to get the order because the Phoenix home development market soon took a sudden turn for the worse.


A Tale of Two Recessions

"That was a pretty brutal time," Johnson says. "Phoenix was still a sleep town with maybe a half million people total. The economy was struggling. The late '80s saw the start of the (Charles) Keating (S&L) scandal and that just about destroyed real estate values. Land went from $20,000 an acre to $1,000 an acre. It almost destroyed our business."

Spitler adds, "The most painful period was 1987-88 when we decided to change over from being just a door maker to making cabinets. We did not have a lot of operational capital. We were so small that it did not take us a lot of business to stay alive. It was all nip and tuck."

Cashflow was at the top of the fledgling cabinet company's list of woes and was closely followed by drumming up new business. Slowly, but surely though, the company built up its business. Ironically, the late 1980's and early 1990's recession that almost wiped the company out ultimately helped it.

"The builders that were busy needed to upgrade their cabinets and other features to entice buyers," Johnson says. "The big cabinet companies that were in town did a lot less of that than they do now. Other companies that are now pretty decent manufacturers were turning out junk then."

In comparison, the current economic slowdown, while still daunting, has had a less severe impact on Oak Craft because the company has a much sturdier financial foundation, Johnson says.

"We were fighting for our life then," Johnson says. "It was all about keeping people employed and houses over their heads. I remember Danny (Spitler) having to pick up checks from our customers and running them to the bank. I remember our suppliers coming in and saying, `I don't know if we can give you this other 100 board feet or not."


Saudi Arabian Experience

Building on some contacts in Saudi Arabia that they had made in the steel business, Spitler and Zachek partnered with a Saudi national and opened a cabinet plant there.

"My brother-in-law entered into a five-year commitment to manage the plant while our Saudi partner handled the political end of doing business their. It was intriguing and fun, but in the end it was not as profitable as I'd have liked. We ended our partnership in 1999.

"The Saudi operation introduced me to international travel," Spitler adds. "Having a good management team has enabled me to pursue some personal goals, especially travelling around the globe." -- <I>Rich Christianson<I>


September 11 Shockwaves

Oak Craft was well on its way to a record year in 2001 when the terrorist attacks on the East Coast reverberated across the country. Sales suddenly dropped as if falling off a cliff. Instead of reaching $20 million, it wound up at $15.9 million, about $1.2 million behind 2000.

"September 11 crushed us," Johnson says. "Through August 2001 we were having our best year ever. On September 12 the phone and fax stopped and we're still struggling. It also didn't help that the stock market tanked. We tend to sell our products to homes $200,000 and up. A lot of people who lost big in the stock market are the same people we counted on to buy new houses. When they picked up the paper and saw that the stock market was down, they put off building or buying a new house.

Still, Johnson says he considers Oak Craft fortunate. "Where other markets have been absolutely hammered by the recession, we've gotten a tap on the shoulder. We've had some big corporate layoffs but we've also had constant expansion, constant growth. New housing developments are stilling going up over 10 acres at a time."

"What September 11 did to our business is minor compared to what it did to the psyche of the nation. Sure, it delayed us. But is delayed the whole country. If it gets in our way then we're not being aggressive enough. I anything it made us look harder at how we do things.

"For the last three or four years we didn't have to work as hard for growth. But when something like this comes along and yanks the rug out from under you, you look at what you're doing that can be improved. There a joke that during the California real estate boom, a lot of successful real estate agents were just order takers. When the bust came, a lot of order takers left the business. I see some similarities to that in the cabinet business in Arizona. We have to go back and sharpen up."


Maple Surpasses Oak

Ironically maple is currently Oak Craft's biggest seller, representing about 50% of volume. But while oak has taken a backseat, the company has no plans to change its name to Maple Craft, Johnson says.

"Maple has been on the upswing the last seven years. Every new door style that we introduce comes in both oak and maple. Oak is the victim of overuse. Customers want something different and I don't think maple will be as trendy as the white wash was on oak. So, I don't think the popularity of maple will collapse like that did. I do, however, expect to see a decrease in maple. For one, there's not enough of it out there. Eventually, just the limited supply is going to effect maple's price and availability.

Johnson notes that maple has some inherent strengths over oak, especially in the manufacture of membrane-pressed veneer doors. "We've taken a look at some veneered oak doors that because of the dryness here we have to be careful. In the Midwest you wouldn't have any trouble with an oak veneer door but, here, when the humidity drops down to 5 and 6 percent in the wintertime and jumps to 80 percent in the summer, the deeper grain in the oak is just guranteed to split wide open. So we've run tests on these doors. I'm comfortable with what they've done so far. We're not just going to throw them out in the field and see whether or not we introduce them or not. We're just not comfortable enough with it. We'll bladder press maple, though, becuase it is a real tight-grained wood. You don't have any of the open grains that can split."

"I think hickory is coming on more and more. Alder is a huge mover for us right now, too. You wouldn't find that is the case in the Midwest, but for the Southwest, it's a very warm door. You can distress it. There's a lot of entry doors being made with alder. It just has a nice fit for the Southwest and we expect to see it grow as a major species for us over the next few years."

Johnson says most of Oak Craft's customers go for the warmer tones embodied by the Southwestern look. "I can tell when a transplant doesn't want to give up their old lifestyle because I'll get a call asking, `Do you guys do cherry wood?' The answer is `No, we don't.' The volume is so low that we won't."


On Not Going National

"I don't know what the drive is to go national, whether it's ego or where you just want to be king of the hill. I think we are a very reality-based organization. We're not going to get to half a billion dollars in sales. We're not going to nudge Masco from the top.

"We want to be able to do remdel and serve the custom builder markets on a local level. I don't think we have the capacity to go after new construction in other places.

"Most of us enjoy the business. We've made it through some nasty times. We've been beat about the head, we've had dealers take us for money. There were times in the beginning where it was hard for us to even make payroll. Somehow we made it by working together as a unit. Our philosophy has always been let's do some business and have some fun at it."

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