I am going to discuss the six business strategies being used in the woodworking industry today to compete with offshore competition.
Note, I am neither endorsing nor criticizing any of these six strategies. Most of the strategies have both positive and negative ramifications. From a purely business standpoint, the first three of these strategies are defensive - graceful ways to admit you don't know how to compete in the manufacturing arena. These are ways to exit the manufacturing business. The last three are offensive - ways to be internationally competitive.
1. Become predominantly importers. This is an easy strategy in the short term. However, your marketing functions are just as vulnerable as if you were manufacturing. Companies that take this path will have a lot of money tied up in the long supply chain between here and China. Purchase orders may be out three months. You have to have product being manufactured, and more product being shipped, as well as product in your warehouse.
If the product in the pipeline becomes obsolete for any reason, you can be left with a lot of inventory to sell at a loss. If you lose control of the design or distribution, you quickly find yourself on a fast track to Chapter 11.
The Chinese you buy from can sell around you. They will take lower margins until you are no longer a factor. To make this strategy work, you must be on top of your marketing.
2. Integrate imported parts and items into product lines. Furniture is assembled from a combination of imported and domestic parts. Other companies import boxed finished items and integrate them into their line. This strategy works only if you have a true partnership with your supplier. It's probably best if you own a piece of your supplier.
3. Move to a purely marketing strategy. These companies are becoming retailers. Here, companies have literally decided to quit manufacturing and transition to the retailer trade. These companies have to keep their foreign plants busy or risk losing a source and creating a competitor.
4. Provide a service that's difficult for an importer to duplicate. The best examples of this are companies that have adopted quick-ship programs structured to have big delivery time advantages over imports. Again, you will have to stay on top with market research. If you use a large build-to-stock strategy, you have the possible disadvantage of high inventory cost and inventory obsolescence.
5. Find a niche that the importers don't touch. This can be very profitable. It requires good market research to identify and maintain your niche. Profitable markets draw competition. Hence, this strategy usually requires you to also adopt strategy six.
6. Become internationally competitive through better engineering and lean manufacturing. This is by far the safest strategy. You can even become an exporter.
Many manufacturers combine or use several of these strategies at once. My company is adopting strategies 4, 5 and 6. The big question is, which of these six basic strategies fits your company's goals?
A good example
One company I had the pleasure of working with went from $7.7 million in sales in 1997 to $22.5 million in sales last year. I wish I could take credit for the tremendous manufacturing improvements the company made, but I was called to this remarkable company to consult, not on a manufacturing problem, but rather on the marketing problems the company was having due to its incredible growth.
In 1996-97, this company realized it was in a drastic situation, and had to make drastic changes. The company rethought everything.
The company began by saying that, as far as any engineer is concerned, the furniture was way overbuilt. They built their furniture with the same basic construction used in Colonial Williamsburg. You could park a Volkswagen on a typical chest and the top would not even flex.
This company removed all the parting rails not needed for looks, got rid of all the dust bottoms, except the one that counts, the one on the bottom. They went to side guides and sold their customers on how much better they worked than center guides. They eliminated as much machining as possible, even eliminating dowels, tenons and many boring operations. They gutted their cases and began assembling panels with cleats.
What's amazing is that the cases are actually stronger and lighter, easier for a consumer to move around for housecleaning purposes. They reduced the part count by 18 percent, and their material cost by an average of 12 percent. I did the same thing at our company and cut out from $10 to $30 a case.
This company went to build to order. It reduced the time from order entry to the shipping dock to two weeks. An order received this Monday is processed in one hour. In that hour, all of the company's suppliers are notified of what they need to make, and the suppliers must have everything delivered by late Thursday of that week or certainly by early Friday. The following Monday, workers begin assembling casegoods to order.
This company buys most of its mouldings from two companies it put into business. Further, it buys most of its panels from two other companies it also put into business. This company has less than two weeks of inventory and over 20 turns on that inventory a year. It has nothing other than this week's shipment in stock.
This company has quick assembly and less machining than any company I have ever seen. The rules for making a profit are different when you have less than two weeks' inventory and 20 plus turns on that inventory a year. Dealers love the fact that the company will ship any order in two weeks, guaranteed. The process that made this company internationally competitive is lean manufacturing.
Service is king
I know of another company where service has become king. The company president told me if he could not out-service companies 13,000 miles away, he should be fired. There is another company that has gone to all-wood construction and all-American woods to help them compete. It can be done if you think boldly.
Last month I said that we, as an industry, have not had to face this kind of threat before. We've always competed with each other, and suddenly we must compete internationally. This takes a different kind of thinking and a different kind of leadership. I also illustrated the cost comparison, showing exactly what we are up against. Knowing this shines light on just how radical a change we must make if we are to compete.
There are strategies that work. Companies that are willing to completely rethink how they do things can not only make it, they can grow. Radical problems require radical solutions.
I will give you a few more examples that can help. We are a capital-intensive industry. Business school textbooks say that capital-intensive businesses should use their investment to the fullest. For years we have avoided our accountants' advice to run all our expensive equipment three shifts a day. With three shifts, not only can you write your investment down three times as fast, with proper scheduling you can get product through your factories three times as fast.
In the past, our excuse was that labor and supervision were not available. With all the plant closures we've had, there are plenty of workers and supervisors who would love a job working any shift. Three shifts are worth thinking about. There is no reason that a triple dresser that only has 10 man-hours in it should take six to eight weeks to go through our factories.
Further, we can rethink the way we manage our companies. I spoke with one of our vice presidents of manufacturing not long ago, and he said quite sincerely, "I could compete if they would turn me loose." He meant it. It is time for the designers to work with the manufacturing people, and the people on our production floors to learn to make things better and less expensive.
We need to take advantage of the fact that furniture retailers are close to us, and we need to involve them in the process. Make them a part of what they sell. Surely such relationships will lead to better servicing of our accounts.
We can find ways to cut selling and administrative expense. Ford Motor Co. was buying its Ranger truck models from Mazda and discovered that Mazda had only three people in its accounts receivable whereas Ford had 300 people. Today Ford has only three people who handle invoicing for the entire company.
It is time to face facts. Since 1998 prices have gone down 14 percent while inflation has gone up 10 percent, resulting in a 4 percent reduction in prices with no corresponding increase in demand for furniture.
America wants more than just lower prices. She wants choice, speedy delivery, quality and product lines that permit her to increase her collection of a particular group over many years. She wants to be able to buy more than one or two finishes on a particular group. There is more than price that sells
It is time to quit complaining that the Asian companies do not have OSHA or EPA regulations to impede them and admit that we would not want to work in the dangerous, polluted conditions of some of the near sweatshops we are competing against.
Teams are as much a part of American culture as apple pie and Chevrolet. When you go into your factories you see employees wearing t-shirts, sweatshirts and ball caps celebrating some team or group they feel a part of. Teams are good at solving problems. Teams are great at getting buy-in and support for better ideas.
The kind of leadership used in China is autocratic. That is where the boss has all of the answers, or thinks he does. The truth is that autocratic leadership is fast on the decision-making end, but it's low on brainpower. Properly functioning and balanced teams composed of five people have five "brainpower." Ten person teams have 10 "brainpower." A 300-person factory can have 300 "brain power," if properly led.
Teams are not as fast as autocratic decision systems, but they typically produce better ideas that have more sincere support for those ideas than the autocratic style of decision making ever could.
We must face the facts, we are destroying our own economy. We have a responsibility that goes beyond making a buck. As a friend of mine said, "I am an American who has had many a pleasant year being involved in furniture manufacturing, and I do not like working overseas. I do so only because there aren't any places left in this country for me to work."
In one article from a North Carolina newspaper, I read how our young college graduates are going to China to work. In the second article I read about a man and his wife who have moved to China where their skills are needed. Both lost their jobs in North Carolina due to the same importers for whom they now work. We moved our manufacturing jobs overseas, and our talent is following.
We can compete internationally. However, to do so we must re-think our organizations and the direction many of our leaders have taken us. We must not spend time trying to market our way out of problems, but rather we must embrace modern manufacturing techniques. Stockholders must contact board members of any furniture company that is selling out without a fight and suggest they remove any defeatist leaders and replace them with people who know how to succeed.
No group of people on earth can outproduce American workers when they are led properly, when they seize the winning spirit and know that victory will be theirs. Leaders must demand new directions if we expect to be successful in the international economy. If we are going to compete in the 21st century's world economy, it is time to make radical change.
This article is based on a speech delivered to the Appalachian Hardwood Manufacturers Association and the Wood Component Manufacturers Association.
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