Overseas competition rattles furniture business

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By JON CHAVEZ
Wednesday, March 21, 2007

The huge irony was not lost on Kevin Sauder.

As president and chief executive of Sauder Woodworking Co., the $700 million ready-to-assemble furniture giant in Archbold, Ohio, he made tough calls in recent years to move some production to Asia to cut costs and stay competitive.

Then, last July, who should show up on his corporate doorstep but Ikea officials, who had a similar problem. The Swedish retail giant had to cut costs - and planned to do so by moving cabinet frame and shelf production from Europe to America.

"Ikea designs in Sweden, runs the costs of shipping, resources, materials, and labor, and found that it was cheaper to make furniture in Archbold for distribution than to make it at its Poland plants and ship it to the U.S.," Sauder said.

"We are to Ikea what China is to a lot of furniture companies."

Global competition has been tough on many industries, but it has struck the $22 billion domestic furniture industry especially hard in the last 10 years.

The industry is an example of many American manufacturers that have struggled with making cost-competitive products in the past decade. Many have closed U.S. operations and built plants overseas or hired firms to make the goods in foreign lands and ship them here.

La-Z-Boy Inc., the nation's second-largest furniture manufacturer, faced sales declines and other problems a few years back with its wood furniture, so it ended much of the U.S. production in the segment and moved the work to China.

"We have to be competitive," said Mark Stegeman, treasurer of the Monroe, Mich., firm with $2.1 billion in annual sales. "And we were one of the last to make the move."

A decade ago, nearly 100 percent of the dinette sets, cabinets, dressers, armoires, and other wooden pieces sold in the United States was produced here.

Today, 75 to 80 percent is made in China, Taiwan, Vietnam, and other Asian countries.

"We should have seen it coming earlier than we did. All we needed to do is look at textiles," said Michael Dugan, chief executive for 17 years at Henredon Furniture Co. who now is a business professor at Lenoir-Rhyne College in Hickory, N.C.

"Everyone thought, China? They won't bother with furniture. We're too small. The freight costs are too expensive, the quality will never be as good.

"Well, ha! How little did we know."

Sauder saw the changing situation in 2000 and bought two firms with ties to Asian production - Progressive Furniture Inc., of Swanton, and Studio RTA, of Los Angeles.

Progressive used factories in Mexico, China, and Indonesia; Studio RTA used plants in China and Taiwan. "They were knowledgeable about world markets and world production, which was something we lacked," Sauder said.

But he quickly realized Asian manufacturers have limitations and U.S. plants could be competitive by streamlining.

So his firm uses China, Vietnam, and Mexico for some wood furniture as well as metal-and-glass pieces. About 80 percent of the company's annual sales are items made in Archbold and North Carolina. Two-thirds of the items it will showcase this month at a High Point, N.C., furniture show are made in the United States.

The average American furniture worker is paid $14 an hour; Chinese counterparts get 69 cents an hour, according to a 2001 industry study.

Labor-intensive items made overseas can yield savings of up to 800 percent in labor costs, Sauder said. "There are certain products you can automate and certain processes you just can't," he said.

Still, labor costs aren't the only factor. Others include labor hours, materials, freight costs, time in transit, overall time to make a product and get it to market, and who has been trained to do what.

"I would not want to go head on with real cheap labor costs. That would be death," said Art Padilla, a professor of business management at North Carolina State University. One advantage of building domestically is faster delivery, he said.

Delivery speed is why La-Z-Boy continues to assemble upholstered products in America and why it likely always will, said Stegeman, the company treasurer.

Customers typically don't special-order wooden furniture, but nearly half of upholstered items are custom-ordered, he said.

"What makes bringing in fully upholstered furniture at our price point possible is that people are used to getting what they want quickly," he explained. "If it's made in China, you have four to six weeks on the water. People don't want to wait that long for their sofa."

To keep upholstered production in the United States and still cut costs, furniture makers looked to Japanese automaker Toyota Motor Corp.

Most, including La-Z-Boy, use Toyota's production system that eliminates waste, operates with virtually no inventory, and continually improves production.

The Michigan firm calls its version "celluar" manufacturing, or using a team or "cell" of employees with the skills to make an item of furniture, like a sofa. They produce customized items quickly and as needed, saving on resources, inventory, warehousing, and delays.

About 40 percent of its U.S. plants use the system; the rest are to convert within 13 months.