Michael K. Dugan is the Chair of the Business School at Lenoir-Rhyne University located in Hickory, N.C., the once-proud center of the furniture universe. Prior to moving to academia, Dugan spent 40 years in the furniture business capped by being president and CEO of Henredon Furniture Industries for 17 years. From that experience he has authored an inside look at the U.S. furniture industry, The Furniture Wars: How America Lost a Fifty Billion Dollar Industry. Anyone managing a value-added wood products business can benefit from Mike’s insight.

Following are excerpts from Art Raymond’s recent interview with Mike about his new book and his insights about the industry’s past and future.

Q: The U.S. has let wood home furniture production move to China and other regions that offer low input costs. Can we overcome the cost disadvantages that have resulted in the so-called “China price”? 

Michael K. Dugan: Comparing hourly wage rates can be misleading. You have to factor in labor productivity, where we should have an edge, and overhead, where the Chinese have an edge. Our material costs are typically lower, and we do not have to pay for ocean freight. But we do have to pay for OSHA, FICA, EPA, health insurance, and so on. No doubt, the Asians can come in under us, but there are many things they have chosen not to do. For example, they do not like small order quantities, and they have steered away from the design and execution features that truly differentiate upper-end products. They are learning some tough lessons from the recent downturn in business. We are like an army that got clobbered in the first battle, threw our weapons down, and abandoned our forts. But the war is not over yet.

Q: Since the mid-1970s the industry has competed away profits and left little cash for capital investment. How important was the failure to invest in plant, equipment, and technology to our defeat in the Furniture War? 

Dugan: The failure to keep pace with technology and labor-saving equipment simply assured that we would be vulnerable to offshore assaults. You cannot win a modern war with antique weapons. It’s okay for our designs to come from the 18th century but not our manufacturing processes.

Q: In your opinion what is the weakest, most vulnerable link in the present import-based business model?

Dugan: Two problems come to mind. First of all, how do you differentiate your product without close control over the subtleties of manufacturing? If your product is made in the same plant as your rival’s goods, how can you get an edge? The inevitable result is increased commoditization, the last thing we need. Second, I do not see how the increased distance between the factories, the merchandisers, and designers can work. I don’t think an army of expatriates will fix that problem. I am not aware of any hot-selling casegoods collections introduced since the Asian Invasion began. All the offshore stuff looks the same, and all the distressed finishes are getting boring. Can we blame this on the economy, or is it the unavoidable result of long distance design and sample making?

Q: With over 300 major furniture plants having closed since January 2000 and many domestic companies now wholly dependent on foreign suppliers, what is the risk that U.S. furniture companies that act essentially as middlemen will become disintermediation? 

Dugan: I love the word disintermediation, but I fear its consequences. U.S. furniture makers have already abandoned their domestic manufacturing facilities. Will we sacrifice merchandising and design next? If we do not fight back and counterattack, our industry could become as obsolete as the American consumer electronics industry. In our favor is the same economic fact we have always faced. Furniture is not a very profitable business, and over the years the countless would-be conquerors of the business have not fared well. Some wish they had never heard of it.

Q: Can a well-financed foreign furniture producer ever develop a fully-integrated powerhouse including manufacturing, U.S. distribution, and even U.S. retailing?

Dugan: I would not rule this possibility out. It is not too difficult to imagine a major Chinese player like LacquerCraft acquiring two or three more U.S. brands and vertically integrating them into a multi-brand store program. They already own Pennsylvania House. But such a strategy will not be easy to do.

Q: We’ve seen lean manufacturing principles create important benefits in the upholstery sector. Can lean work in wood furniture production?

Dugan: Absolutely, lean thinking works in wood furniture. Lean activities like kaizen events, 5S, and value stream mapping offer tremendous results. But full conversion to lean from the industry’s traditional model is very costly.

Q: What changes are required to fit lean practices into wood furniture production? 

Dugan: To fully benefit from lean you can’t just assemble to order from a stock of parts. You have to go all the way. Start with product designs that are created for efficient manufacturing, install a responsive manufacturing process, and keep changes in your process and products in sync. The printing of my book is a good example of lean. It’s printed only when a customer order is in hand.

There’s no inventory. But the prerequisite to achieving such a lean process is leadership and commitment to the conversion. What are the leaders of our domestic furniture manufacturers waiting for?

Q: The wood furniture industry is finally adopting some of the mass customization principles used for years by cabinet manufacturers to defend their domestic markets. Do you see this trend expanding and, if so, how far could it go?

Dugan: Mass customization will continue to grow for the wrong reason. Furniture makers love to copy each other. And for the right reason, because it helps to meet consumer needs. No doubt customization is needed. Lots of people don’t want a mass-produced dining room, especially one made in China. They like the idea of custom products that will fit their rooms and are the color they want. But offering too many finish options is an overrated strategy. It can confuse the consumer. On the other hand, size options that could really give consumers lots of choice would be a huge plus. Unfortunately size flexibility is harder to produce. Doing so in volume requires creative product engineering and a quick change manufacturing process.