AWI Targets Critical Issues to Help Members Survive and Thrive

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 wil