strategies for the new american furniture industry

8/2/2019 Strategies for the New American Furniture Industry

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New American Furniture Industry

Strategies for the

IIntroduction

North Carolinas traditional casegoods ur-niture industry, based on large, vertically inte-grated actories, is largely gone, with urnituremanuacturing moving to oshore locations.Many experts claim that mass-produced case-goods urniture manuacturing is lost orever toU.S. companies, but savvy manuacturers could

prove them wrong. Domestic businesses thatollow a ocused strategy combining strategicadvantages with recent advances in designsotware, coupled with modern manuacturingmethods, can reclaim market share and becomeleaders in the new urniture industry.

This section examines the advantages omanuacturing in the United States and con-trasts the traditional urniture industry with thenew urniture industry. Section 2 introducesthe important concepts o Modern Manuactur-ing Methods relevant to urniture manuactur-

ing. The urniture Design/Build manuacturingapproach is presented in section 3. Factorymanagement using the key concepts o maxi-mizing prot, balancing production with sales,and streamlining production-foor managementis discussed in section 4. Marketing strategies othe new, smaller urniture manuacturer will di-er rom the traditional mass production industrythat builds todays imported urniture, as dis-cussed in section 5. The nal section examinesdierent business strategies or the new urnitureindustry.

The Traditional Furniture IndustryThe traditional large-actory, mass-production

urniture industry has largely disappeared. Do-mestic urniture manuacturing in the uture willhardly resemble yesterdays urniture industry.

We are building a new urniture industry almostrom the ground up!

Consider the weak points o the traditionalurniture manuacturing business. The industrydeveloped around the biannual High Point mar-ket and typically spent months developing newlydesigned groups to send to market, hopingor sucient orders to make the group viable.Bottlenecks in design and engineering resulted

in a lengthy development process. I enoughorders were placed during the market, then alarge production run created warehouse stockor retailers to order. Factories had been builtto produce large batches o new product andas a result, they did not handle small batcheseciently, nor could they be fexible. Even whennew equipment was introduced it operated inisolation, and upgraded production lines contin-ued to operate with high inventory levels. Thewhole eort remained slow, inecient, expen-sive, and risky.

Advantages o Manuacturing in theUnited States

U.S. manuacturers have the advantage obeing close to the consumer and consequentlycan better service the market. A shorter pipelineto the market means that inventories can bemuch smaller. Administrative costs are generallylower than those incurred when doing businessoutside the country. As manuacturers abandontraditional marketing methods, they will nd itunnecessary to invest in large showrooms thatare unused most o the time. The domestic urni-ture manuacturer will be able to quickly providea customized product using enhanced modernmanuacturing methodology.

Although overseas producers can adopt thesame methodology, because o the distances


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2 Strategies or the New American Furniture Industry

involved they will not be able to provide a timely, cus-tomized product. In addition, the domestic modernmanuacturer will be able to incorporate new technol-ogy developments into the manuacturing process toserve the market even aster. The domestic manuac-turer will meet changing market design and needsquickly. Finally, addressing the demand or a custom-ized urniture marketusing technology and modern

manuacturing methodology to hold down costswillactually create a new market opportunity.

Comparing the Old Industry Model to the NewFurniture Industry

The new domestic urniture strategy will ocusspecically upon customers needs. This is not thecommodity producer o yesterday that employedhundreds to manuacture in batches o thousands.The departure o those companies rom the domes-tic manuacturing scene provides an opportunity orenergetic, smart entrepreneurs with a keen sense o

the market and a knack or manuacturing organiza-tion to prosper. The new urniture companies are likelyto be much smaller, energetic enterprises prepared toseize new opportunity in the marketplace by protablymanuacturing in batches o one.

The technology and manuacturing methods toquickly provide a customized or semi-customizedproduct to the customer exist today. For example, acompany could oer a standard product line with rap-id order completion, yet also oer a limited number ooptions (congurations), sizes, and nishes beyond thestandard product or a slightly higher price. This busi-

ness strategy contrasts sharply with the old industry,which mass-produced large batches with no customi-zation. Being able to communicate ace-to-ace withcustomers and responding to their needs will be abranding attribute o the new industry, ocused oncustomer service, ast product delivery, and the abilityto say Yes! to customer requests. The new actoryconcept includes constant innovation capabilities thatadd shapes and eatures easily and at low costs. Thisdomestic industry will also be able to leverage a grow-ing niche market demand or sustainable, green, solidwood products by using domestically grown woods.

To oer customized products, actories will operatevery dierently rom the traditional urniture industry.Many tasks will be accomplished in the design andengineering department using 3-D sotware to designand modiy pre-engineered products, generating a billo materials and instructions or operations personneland equipment. Since more tasks will be accomplishedquickly, it is essential that people be adequatelytrained. The rough mill will dier rom its predeces-sors by having the fexibility to process (cut and glue)

more than one species and thickness at a time. Rawmaterials will be on hand as standardized parts, stockplywood panels, or glued-up lumber panels to supportthe product lines oered. The machine room can beset up with short production lines or each type o partor subassembly needed or the nished goods, but al-lowing each machine center to operate independentlywhen needed. Assembly and sanding operations

can also employ the short production line approach.Finishing can occur beore assembly on fat-line opera-tions. Alternatively, standard color cases can be n-ished on a conveyor line, and custom color cases canbe nished o line using carts. The new actory willrequire very limited inventory because nished goodsare immediately packed and shipped. A fexible pack-aging system capable o providing corrugated boxesthat precisely t the various product sizes will also beessential. Small companies may be able to orgo theexpense o boxing and packaging by blanket-wrapshipping directly to the customer.

Finally, how people are managed in the new urni-ture industry will contrast sharply with the old indus-try. In the past, large casegood plants employed 300to 500 low-skilled employees. The new casegoodplant will be considerably smaller, employing 50 to250 people. Because the new workorce will be bet-ter paid, more empowered, and sel-motivated, it willbe able to create a fexible workplace with minimumsupport or management supervision. Factory foormanagement will be open and visual, using simplecomputer networks accessible to production workersto track production and visual techniques to improve

fow throughout. No longer will the supervisor keepthe schedule on a piece o paper in his pocket. Table 1compares the old manuacturing concepts to the newactory manuacturing concepts.

Casegoods manuacturing is not limited to resi-dential urniture segments, but includes the contracturniture industry servicing hotels, nursing homes, andeducational markets. Using innovative marketing andmanuacturing techniques, the new casegoods urni-ture manuacturers will seek to recapture the Americanmarket by oering:

Fasterdelivery Afocusonservice(readilyavailablerepairparts) Bettervalueforcustomersdollar Customizedproductofferings Betterqualityofworkmanship Useofenvironmentallysustainablematerials


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North Carolina Cooperative Extension 3

Two Successul Paths or Domestic CasegoodsFurniture Manuacturers

The large mass-produced casegoods urniture manu-acturers can set up large, modern production centers

in their ormer home areas within North Carolina andVirginia. In nearby locations, a supply chain networko support vendors can establish operations to providelumber and plywood products, nishes, hardware,packaging, and other related goods and services. Thenext section details how these large plants, with theirlocal support networks, can successully competeglobally.

The second successul path involves ollowing abusiness strategy o setting up a Design/Build shop toserve a local or regional area with semi-custom urni-ture produced on a made-to-order basis. Section 3 dis-

cusses how a small, locally owned shop can use stockmaterials to oer a wide variety o casegoods productsdesigned around a common theme.

IIModern Manuacturing Methods CanRebuild the Mass Market CasegoodsFurniture Industry

Modern Manuacturing Methods will allow a case-goods actory to quickly manuacture and deliver asemi-custom or custom product to the customer at a

low manuacturing cost. The controlling principles areecient material and inormation fow and manuac-turing fexibility throughout the process. The majorModern Manuacturing Methods will help NorthAmerican actories take advantage o their close prox-imity to raw materials and markets.

1Fast Track Engineering. The goal o this concept isto eliminate the design and engineering bottleneck otraditional urniture plants and decrease the time rom

idea generation to production and marketing. Ways todo that include:

a. Use pre-engineered designs that present dier-ent styles.

b. Oer a variety o products (SKUs) that sharecomponents. For instance, a chest o drawers,vanity, and nightstand in the same style will havemany common parts (same drawer sizes, partingrails, etc.). Using standard-sized parts and panelswill acilitate the design process, as they will bealready available in the parts library.

c. Oer set options on a basic model that vary thestyle or conguration, and set up a menu orchart that allows clients to choose quickly.

d. Incorporate 3-D design sotware that automatesthe modication o pre-engineered products and

creates a bill o materials and part drawings romthe users choices. A seed library o previouslyconstructed designs will provide a base prod-uct that can be reused or easily modied usingdynamic designs. At a minimum, the sotwarewill provide manuacturing support that willautomatically or semi-automatically create billso materials, a detailed parts listing, and job costestimates.

2Flexibility and Flow. The old casegoods lumbercut-up operations were designed to handle large

volumes o the same lumber, cutting the same thick-ness and species or hours or days. In the modernmanuacturing actory, we want to fow parts andcomponents through as quickly as possible and tospeed needed inormation rom order entry to thefoor. Fast Track Engineering will accomplish this rapidfow o inormation. The design o the new actory willneed to allow process fexibility so that quick changescan be made. For example, lumber cut-up operationsmust be able to process more than one species and

Traditional Concept New Concept

Main Bottleneck Design and Engineering Plant Capacity

Quickness to Respond to Change Very Poor Very Agile

Investment in Raw Materials Large Small

Investment in Work-In-Process Inventory Large Small

Investment in Finished Goods Large Small

Investment in Equipment Large Moderate to Small

Investment in Facilities Large Moderate to Small

Cost o Sales Force Large Moderate to Small

Cost to Design/Engineer Products Large Moderate to Small

Labor Productivity-in Sales $/Employee Low Moderate to High

Table 1. Comparison Between the Old Casegoods Furniture Plant and the New Furniture Plant.


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thickness at a time. Multiple lines or workstations inthe assembly area will allow more than one item to beproduced i needed. Finishing can use either standardspray booths or fat-line nishing, depending on theproduct. Thus, nishing might be complete prior toassembly. Rather than having a long conveyor line, itmay be more fexible to use carts to apply stains anda short conveyor to spray clear nishes. Two practices

necessary to develop actory fexibility and fow areshort production lines and reduced set-up time.

3Short Production Line. The old casegoods acto-ries were set up or large runs exemplied by the longconveyors used on the assembly and nishing lines. Toachieve the fexibility previously discussed, the modernurniture actory will be organized or small runs ohigh variety SKUs using short production lines. Flexibleprocessing lines or work cells will eliminate materialhandling and load movement by combining opera-tions. Figure 1 illustrates a short production line or

parting rails that will allow both combined or indepen-dent operation o the moulder, tenoner, and vertical

boring machine. Short production lines provide ahigher part quality because production can be bettermonitored when work isnt scattered across mul-tiple workstations. Higher labor productivity, shorterthroughput time, reduced scrap parts, and greatercustomization can be achieved by careully usingshort production lines in machining, assembly, andnishing operations.

4Reduced Set-Up Time. Quick set up creates fex-ibility or the casegoods urniture manuacturer. Smallbatch sizes are possible only when set-up times areeliminated or signicantly reduced. Smart xturingcan speed set-up times on manual and ComputerNumerical Control (CNC) equipment. Convertingseveral manual operations to a single CNC machiningoperation is a simple method to reduce overall set-uptime. Modern Manuacturing Methods are only pos-sible when set-up time is signicantly reduced.

5Quality Improvement. The elimination o largebatches and development o short production lines

Figure 1. Example o short line production or parting rails (red arrows indicate parting rail process ow). This arrange-ment allows each machine to work independently when needed or a single operation or as a complete line to make aully machined part.


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will result in a close-coupled process. Manuacturingproblems will surace and be corrected earlier, and thereduced inventory will make it easier to locate partsand less likely that they will be damaged in transit andstorage. Simpliying and streamlining the manuactur-ing process will eliminate much o the rework, repair,and replacement. Interrupting jobs to generate re-placement parts required in assembly will become the

exception rather than the rule. Quality improvementwill greatly reduce manuacturing costs and increasethroughput. The philosophy o Modern ManuacturingMethods will support make one and make it right.(Note: Because the emphasis is on short productionlines and work-in-process inventory reduction, equip-ment reliability is critical. Consequently, preventivemaintenance will be a requirement or success.)

6Lot Sizes Small But Proftable. The modern manu-acturing actory will produce a customized, high-endproduct. The high average value o each unit will

not require large daily volumes to support protablemanuacturing. The operation will be streamlined witha fat management structure, more ecient engineer-ing, standardization o parts and panels, increasedmanuacturing fexibility, reduced rework and repair,and elimination o nished goods inventory. These e-ciencies will allow manuacturers to produce a limited,customized product in much smaller lot sizes.

7Cycle Orders in Two Weeks. In addition to oer-ing a customized product, one o the major marketing

strategies will be to produce orders in two weeks orless (Figure 2). This will be accomplished by fowingproducts quickly through the actory and by fowinginormation quickly, as well. The design process willbe quick, will be linked to the manuacturing process,and be acilitated by the use o pre-engineered de-signs that allow ast processing through design andengineering. In addition, stock panels o plywood and

solid lumber will eliminate delays associated with plac-ing purchase orders and delivering raw materials, andthese materials will require minimal processing. Orderswill be scheduled or processing and shipment withintwo weeks o receipt. The manuacturer will organizeso that products can be produced at the same pace asincoming orders.

8Eliminate Most Finished Goods Inventory. Themake-to-order manuacturing strategy eliminatesall nished goods inventory except those productsawaiting shipment at the loading dock. This oers an

advantage over the manuacturers that have abundantinventory tied up in warehouses and container ships.The uture urniture industry should initially ocuson satisying the market or customized productsaneed the industry is currently not addressing. Becausethe uture actory will streamline manuacturing andmanagement costs, the customized product will beavailableand aordableto most buyers. Satisy-ing the demand or customized, quality urniture withrapid order completion strategies will create a newmarket or urniture.

TWO WEEK DELIVERY

PackandShip

CustomerConcept

Marketing Designand Engineering

MANUFACTURING

Manual Parts

CNC Parts

Online

OSP Parts

Sanding andFinishing

Assembly

ProductionControl

Order Entry

ConceptDevelopment

Figure 2. Overview o New Casegoods Furniture Manuacturing.


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9Empowered Employees. Eective, skilled employ-ees will reduce labor costs. Though these actory fooremployees will require greater compensation, they willhave the responsibility and the inormation requiredto be sel-directed. These ully supported employeeswill be supplied with schedules, directions, drawings,and training to make decisions immediately. High jobsatisaction among employees will reduce turnover.

Indirect labor will be reduced by the improved fow omaterials, assemblies, and inormation, which will re-duce the need or supervision, material handlers, ocesupport, parts storage employees, and repair personnel.Improved designs that require ewer operations andsmarter machining will reduce direct labor.

10Visual Shop Floor Management. Think o ahighway with signs that help visitors determine theirlocation and reach their destination. Similarly, the vi-sual shop foor will use visual indicators to quickly andeectively communicate the production status, inven-

tory levels, materials placement, and order scheduleand commitments. The goal is to create a workplacewhere problems are immediately obvious and whichemployees can quickly correct.

Applying Modern Manuacturing Methods tocasegoods manuacturing can allow a new breed odomestic U.S. manuacturers to successully competedomestically and globally. Modern ManuacturingMethods can eliminate most o the acility, equipment,and inventory costs borne by the ormer large-actorycasegoods industry and create a new casegoods

industry oering high quality, high labor productivity,quick delivery, low capital and inventory investment,and high protability. The next sections will examinealternative business models, prot management, andmarketing.

IIIThe Design/Build FurnitureManuacturing Concept

What is Design/Build? It is the process by which cus-tomers design the custom (or semi-custom) casegood

urniture they want, either alone or with the help o adesigner or marketer, using design sotware. Design/Build establishes a streamlined connection betweenthe customer and the manuacturer and helps themanuacturer complete orders quickly. Customersbenet by receiving a product that more closely meetstheir specic needs.

The Design/Build process will help the domesticmanuacturer to provide ast delivery o a productthat includes many options, such as adding dierent

nishes or sizes to stock items. This business strategyserves those wanting lower prices, immediate delivery,and some customization, as well as those who wantmore choices. In addition, the Design/Build sotwarecan create a Web-based customer interace that allowsmass customization.

The market or a Design/Build manuacturer is notlimited to only the individual end users, but to many

market niches such as interior designers, contractsales, and retailers.

Sotware will illustrate the customers design andautomatically pass the inormation to the design engi-neering department or review beore being scheduledor manuacture. In essence, the process denes thecustomers needs and then manuactures a productthat meets those needs.

The key or the Design/Build manuacturer is theability to quickly design, build, and deliver a customproduct. Some o the components o the Design/Buildconcept include: 1) design sotware; 2) stock materials

program; 3) common design platorm; 4) parts stan-dardization; and 5) limited service area.

Design SotwareDesign sotware development has been driven by

the automotive, aerospace, and other high-capitalindustries. Engines, transmissions, airplanes, andother high-value products require sotware that canhandle a high degree o detail. Although learning allthe capabilities o this sotware takes time, urniturecan be successully designed using relatively little othe sotwares overall power. Alternatively, sotware is

available that targets the value added wood productsindustry. It is generally simpler to learn and producedesigns quickly. The ability to design quickly has value.The sotware package employed should bolster theDesign/Build business concept by using simple, quicktechniques to design urniture and provide support tothe manuacturing foor.

Design sotware cannot replace salespeople or de-signers, but it can help them do their jobs by present-ing an image o the customers selected options. Avisual 3-D representation o the urniture (Figure 3)placed in a virtual room similar to that ound in the

customers home could help sell the item. The designsotware presents the customer with a seed catalogor library o urniture cases. The parametric or rules-based sotware will design the total case, unlike manyCAD programs where each part must be specied.Changes can be made quickly by the customer, salesrepresentative, or designer. Customization or congu-ration options might include the type o legs, mould-ings, doors and door styles, drawers and drawer styles,shelves, partitions, and hardware design, all selected


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by the customer. Once the customers design inorma-tion is captured, the sotware will perorm other taskssuch as ordering parts or hardware selected rom anInternet supplier library, or generating a cutlist, buylist,2-D support drawings, sales proposal, and CNC codei required.

Correct CNC machining can help the Design/Buildmanuacturer fow parts and components through theplant as quickly as possible, and eciently fow andtranslate inormation rom the order entry process intoinstructions on the foor. The accuracy achieved with

Design/Build, used in conjunction with CNC machin-ing, will speed assembly because the parts t togetherprecisely. It is essential, however, that the manuac-turer have well-trained employees who understandthe sotware and hardware capabilities, and that theseemployees be supported by supervisors who under-stand the new business strategy.

In those situations where CNC machining is part othe process, our guidelines are recommended or suc-cessul implementation: 1) Combine operations andminimize set-ups by perorming as many operations atthe CNC as possible. This must be careully balanced

because the CNC could become a production bottle-neck. The goal is to make CNC technology as fexibleas possible; 2) To use CNC time eectively, workplacedesign should allow or rapid loading and unloadingo parts, dust, and scrap. Pre-positioning jobs and jobkits may require a planning coordinator to help theoperator with scheduling, materials, tooling, and pro-gramming. CNC operators can develop and use fex-ible xturing techniques to minimize set-up time, andshould consider using laser projection to pre-position

stock. They will also use quality control in ront o theCNC operation to eliminate deective parts beore theywaste CNC time; 3) Design and engineer the parts sothat all machining takes place on one side without fip-ping the part on the table when possible; 4) Purchaseand use the appropriate sotware, taking time to learnhow to set up the sotware to match your machineconguration and avoid repeated programming errorsthat must be corrected at the CNC.

Stock Materials Program

The Design/Build strategy requires that parts andmaterial be available quickly. This can be accom-plished by implementing a stock materials program.Narrowing the number o product lines will reduceand simpliy raw material inventory throughout theplant. For example, the company may keep a lim-ited number o wood species in stock. When oeringproducts containing solid lumber or straight-grainpanels, a limited stock panel program can be estab-lished in which one size o stock panel serves multipleproducts and allows or the ast processing o orders.Or a plywood component supplier might lay up aces

on previously made core stock only when the urnituremanuacturer orders the nished panels. Similarly, themost popular hardware designs can be kept in stock,and customers can use a menu to make their selec-tions. A set number o nishes will be available, or themanuacturer may oer a wider variety using someo the automated mixing systems available to createcustom stain nishes.

Key to the success o the Design/Build manuactureris a ocus on protable and requently requested prod-

Figure 3. Sotware can present a 3-D picture o the fnished design to the customer and provide support drawings tothe manuacturer.

Small Table Created in 3-D Software 2-D Support Drawings Created in 3-D Software


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ucts. The Design/Build manuacturer needs to reducethe number o product lines oered by imposingsel-limits that dene its operating parameters. This is,in eect, implementing the amiliar 80/20 rule, whichocuses on the 20 percent o product lines that gener-ate 80 percent o sales. Typically, companies will addproducts to but never remove any rom their oerings.Using the 80/20 rule will target and eliminate prod-

ucts that have a low sales volume, a high overheadbecause they are dicult to manuacture, and oerlittle uture potential. Some business will undoubtedlybe lost, but by careully selecting a limited number oproduct lines, the manuacturer can ocus on thosethat are most protable and excel in manuacturingthem.

Common Design PlatormAs discussed, customers may be presented an initial

case rom which they can launch their design ideas.This gives them a springboard to get started, and it

also provides pre-engineered designs to guide thedesign process. The sotware will oer design fexibilityand constraints, so the manuacturing process is nothampered. Although the manuacturer may limit hisproduct line to a certain style o urniture and a limited

choice o species, customization options are availablewithin these constraints.An example will help clariy the purpose o a com-

mon design platorm. The customer o the Design/Build urniture manuacturer can purchase a chest,cabinet, table, chair, or whatever is being manuac-tured and marketed. The customer can speciy width,height, and depth, and change the conguration o

shelves, partitions, mouldings, doors, and drawers.The manuacturer will have previously established axed set o parameters that control how the piece ismanuactured: material, joinery, insets, standard draw-er construction, available mouldings and trim, sizelimits, our nishes, and so on. The process is similarto purchasing a Dell computer online, where you canselect specications rom a limited number o options.

Depending on the product and the market, the pro-cess may be even simpler. A menu o pre-engineereddesigns rom which customers can choose the itemssize could enhance the urniture-buying experience.

Todays urniture showrooms, lled with imported ur-niture o similar appearance, are depressing consumerinterest and, as a result, discretionary money thatcould be spent on urniture is being spent on moreexciting purchases.

Figure 4. The Design/BuildInteraction Between the Cus-tomer, Design, and Manuac-turing.


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Standardization o PartsStandardization o parts will begin during the design

process. Every designer that serves a company willagree to use common sizes on some componentsto lower manuacturing costs. Standard sizes will beoered or units and components so the productcan be manuactured in a timely ashion using ewerinventory dollars. A standard-sized rail width will ac-

commodate very dierent products such as tables,ace rames, and chairs. Similarly, a standard selectiono moulding will provide limited variety that can beinventoried. Designers will need to understand thatstandardization is driven by the need to service thecustomer quickly. However, nothing precludes designsthat require non-standard items, but the customershould understand that extra cost and time might beincurred.

Standardization o parts and panels should helpestablish processing centers that manuacture thesecommon items quickly. Manuacturers should develop

cooperative relationships with suppliers to lower costsand delivery times. A simple fow schematic or theDesign/Build strategy is shown in Figure 4.

Servicing a Limited Area or GreaterProftability

Instead o trying to cover a national market, the De-sign/Build operation can service an area that meets itsbusiness goals. It can avoid many o the expenses thatormer large urniture manuacturers carried, includ-ing expensive market showrooms, independent salesrepresentative commissions, and large inventories or

raw materials, work-in-process, and nished goods.The lowest marketing and distribution costs will beincurred by ocusing on a limited, local service region,and the product can be sold at the ull retail price.A 100-mile service area radius in a medium-density

population area in the eastern U.S. should be morethan sucient to support the typical Design/Buildbusiness. Two actors should help determine the exactsize o the service area. First, the business shouldidentiy an area that will generate signicant volumeso orders. Second, that area should be easily accessibleor deliveries and parts replacement or repair.

In summary, the objective o the Design/Build pro-cess is to fow inormation throughout the manuac-turing, purchasing, and assembly process to providethe customer with a high-quality, customized piece ourniture quickly and at a competitive price. A success-ul streamlined operation requires that inormation beentered once and that the resulting cutlists, buylists,and CNC code be generated without error.

IVUsing Factory Focused ManagementTechniques

Does your plant operate according to a schedule?Is it a good schedule? Do you know i your actorywill be protable this month? I you cannot answeryes to these questions, you should learn about ProtScheduling.

The previous three sections have discussed strategiesand methods that the new domestic urniture industrywill employ. This section will ocus on Factory FocusedManagement, a strategy that embraces three keyconcepts:

1) Using production scheduling to manage prot;2) Balancing manuacturing, engineering, and sales;3) Superior actory foor management.

Using Production Scheduling to Manage ProftA proactive approach to prot management can

increase the bottom line o a wood products operationsignicantly compared to the company that waits untilthe end o the month to determine prot or loss. Protmanagement uses budgeted actors or weekly laborand overhead costs, and job material costs to estimateweekly expenses based on a production schedule. Theschedule provides an estimate or sales revenues basedon product prices and sales quantities. These estimatesor revenues and expenses can help calculate weeklyprotability.

Prot management systems can work well in a widevariety o wood products operations where there are

clear beginning and ending dates or jobs. This systemcan be started with the ollowing inormation:

1. Revenuesaverage daily revenue gures can beobtained by dividing the jobs total revenue dollarsby the number o schedule days the job requires.

2. Material coststhe average daily materials cost perjob can be obtained by dividing the total materialscost or the job by the number o schedule days thejob requires.

3. Direct labor coststhe budgeted direct labor dol-lars per week or the projected payroll dollars can be

used to nd direct labor dollars per week. For mostwood products operations, the weekly direct laborexpense should fuctuate little i the schedule isconsistently ull.

4. Overhead coststhe budgeted annual overheadcost divided by the number o weeks per year willprovide a weekly overhead dollar cost. Total over-head costs or the actory and the oce shouldbe used, although they can be split into separateexpense categories.


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Proft Management SystemAn Example: A case-goods and millwork company projects the next 10weeks o orders. The top hal o Table 2 lists the jobsby scheduled completion during the 10-week period.The projected revenue based on accepted bids isshown mid-table, and in the lower hal o Table 2 bud-get inormation is used to estimate the weekly expens-es or materials, labor, and overhead. Direct labor isshown as a constant dollar amount per week based onrecent payrolls, and overhead costs are based on thecompanys budget. These expenses could be adjusted

up or down based on knowledge o actual expenses.

Together, the revenues and costs are used to project aweekly prot.

This example illustrates a company that is control-ling expenses and is modestly protable. In the secondexample in Table 3, poor management has allowedmaterials costs to increase by 2 percent on each job,and direct labor and overhead expenses each in-creased by $100 per week. The result was a signicanterosion o protability so that now the company isoperating at near-zero prot.A prot schedule can be customized to t any

manuacturing situation. Companies do not necessar-

Example Profit Management $10,000 Per Week Job Capability Company With Expense Control and Scheduled Profitability

Job Revenue Material $ % Materials Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Totals

Job 110 14,000$ 6,720$ 0.48 10,000$ 4,000$ 14,00$

Job 111 9,000$ 3,780$ 0.42 6,000$ 3,000$ 9,00$

Job 112 17,000$ 8,670$ 0.51 7,000$ 10,000$ 17,00$

Job 113 5,000$ 2,300$ 0.46 5,000$ 5,00$

Job 114 13,000$ 6,760$ 0.52 5,000$ 8,000$ 13,00$

Job 115 6,000$ 2,880$ 0.48 2,000$ 4,000$ 6,00$

Job 116 22,000$ 9,460$ 0.43 6,000$ 10,000$ 6,000$ 22,00$

Job 117 32,000$ 14,400$ 0.45 4,000$ 10,000$ 14,00$

Reve nue 118,000$ 54,970$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 100,00$

Expenses

Materials 4,800$ 4,440$ 4,830$ 5,100$ 4,900$ 5,120$ 4,500$ 4,300$ 4,380$ 4,500$ 46,87$

Direct Labor 1,900$ 1,900$ 1,900$ 1,900$ 1,900$ 1,900$ 1,900$ 1,900$ 1,900$ 1,900$ 19,00$

Overhead 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 3,000$ 30,00$

Total Expenses 9,700$ 9,340$ 9,730$ 10,000$ 9,800$ 10,020$ 9,400$ 9,200$ 9,280$ 9,400$ 95,87$

Profit $300 $660 $270 $0 $200 -$20 $600 $800 $720 $600 $4,130

% Profit 3.00% 6.60% 2.70% 0.00% 2.00% -0.20% 6.00% 8.00% 7.20% 6.00% 4.13%

Table 2. Scheduling o Job Revenue and Expenses to Project Proft Management.

Example Profit Management $10,000 Per Week Job Capability Company With Profitability Problems

Job Revenu Material $ % Materials Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Totals

Job 110 14,000$ 7,000$ 0.50 10,000$ 4,000$ 14,000$

Job 111 9,000$ 4,000$ 0.44 6,000$ 3,000$ 9,000$

Job 112 17,000$ 9,000$ 0.53 7,000$ 10,000$ 17,000$

Job 113 5,000$ 2,400$ 0.48 5,000$ 5,000$

Job 114 13,000$ 7,000$ 0.54 5,000$ 8,000$ 13,000$

Job 115 6,000$ 3,000$ 0.50 2,000$ 4,000$ 6,000$

Job 116 22,000$ 10,000$ 0.45 6,000$ 10,000$ 6,000$ 22,000$

Job 117 32,000$ 15,000$ 0.47 4,000$ 10,000$ 14,000$

Re ve nue 118,000$ 57,400$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 100,000$

Expenses

Materials 5,000$ 4,667$ 5,039$ 5,294$ 5,092$ 5,308$ 4,727$ 4,545$ 4,602$ 4,688$ 48,963$

Direct Labor 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 20,000$

Overhead 3,100$ 3,100$ 3,100$ 3,100$ 3,100$ 3,100$ 3,100$ 3,100$ 3,100$ 3,100$ 31,000$

Total Expenses 10,100$ 9,767$ 10,139$ 10,394$ 10,192$ 10,408$ 9,827$ 9,645$ 9,702$ 9,788$ 99,963$

Profit -$100.00 $233.33 -$139.22 -$394.12 -$192.31 -$407.69 $172.73 $354.55 $297.73 $212.50 $37.5

% Profit -1.00% 2.33% -1.39% -3.94% -1.92% -4.08% 1.73% 3.55% 2.98% 2.13% 0.04%

Table 3. Poor Control o Materials, Labor and Overhead Expenses Erodes This Companys Proftability.


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ily have to use a constant dollar amount per week orexpenses. They can use amounts that range up anddown based on expectations o expenses associatedwith specic jobs. Given the ease and availability o

computer spreadsheets, managers and owners shouldbe projecting their protability and communicatingthe bottom line to sales and manuacturing.

The prot scheduling method can be adapted bycompanies that are accustomed to short order times.The ollowing example illustrates the importance ousing job inormation to set production schedules inadvance and vividly points out that protability de-pends upon completing jobs on time.

In the example shown in Table 4, a shop bids a$12,500 job, estimating that it will take 5 days to com-plete. This shop has 5 employees and annual average

sales o $600,000. The manuacturing expenses or thisjob include $5,000 or materials, $2,813 or labor, and$4,063 or overhead. The job is bid with a 5 percentprot. Table 4 also shows that the jobs protability de-pends upon the shops ability to nish on time or early.The right side o Table 4 shows a large dierence inprotability between nishing one day early (16 percentprot) and nishing one day late (6 percent loss). Thepenalty or running beyond the scheduled completiondate is $1,375 per day, consisting o $563 in directlabor and $813 in overhead. Thus, there is a reward ornishing early and a penalty or nishing later, or or

letting the schedule have gaps.

Balancing Sales, Engineering, andManuacturing

Casework and millwork companies oten ail to sendthe job to the manuacturing foor in time to meet thedelivery date. Even when a company wins a bid a yearin advance, the shop typically must rush to completethe order on time! Why is this so? The cause variesamong companies and may have roots in either sales,

engineering, or on the manuacturing foor.Once a bid has been awarded, huge amounts o

time may be lost because the architects or job ownersare slow to select materials and colors. They mistaken-

ly believe that because the job is not due or months,they have plenty o time to decide.

The engineering department o the casegoods man-uacturing company must push to obtain the requiredinormation rom the buyer or architect to avoidrush jobs in the shop and additional manuacturingcosts and disruptions. When the bid is won, a quali-ed engineer should go through the job and make alist o needed inormation such as material selection,eld dimension, color, and hardware, and send thislist weekly to the buyer with its current status. A bold,large-type disclaimer on the cover status sheet should

state THIS JOB HAS NOT RECEIVED COMPLETE,REQUIRED INFORMATION AND IS NOT ON TRACKFOR ON TIME DELIVERY. When job inormation is notin the hands o the shop, the job is stalled, and theresponsibility or delaying progress should go back tothe buyer or architect.

On the manuacturing foor, preplanning shouldestimate time by work center. This allows the managerto move the crew as required and avoids what shouldbe a part-time job rom becoming a ull-time job.There should be a pre-job meeting with the crew toreview the schedule so they can discuss any issues that

would prevent on-time completion. Floor employeesshould have access to the schedule and be asked tocontribute ideas that will help the shop stay ahead oschedule.

The modern actory has examined fow o productthrough their operations and made adjustments tominimize material handling and set-up time. Manycompanies benet by adding gravity (non-powered)roller conveyors that bring discipline to the manuac-turing foor so that the oldest orders are processed rst

Bid Projection Scheduling a 5 day Completion Time Actual Number of Days to Complete the Job

Job Bid $ Avg $/ Day 4 days 5 days 6 days 7 days

Revenue 12,500$ 2,500$ 12,500$ 12,500$ 12,500$ 12,500$

Expenses

Materials 5,000$ 1,000$ 5,000$ 5,000$ 5,000$ 5,000$

Direct Labor 2,813$ 563$ 2,250$ 2,813$ 3,375$ 3,938$

Overhead 4,063$ 813$ 3,250$ 4,063$ 4,875$ 5,688$

Total Expenses 11,875$ 2,375$ 10,500$ 11,875$ 13,250$ 14,625$

Job Bid Profit 625$ 125$ 2,000$ 625$ -$750 -$2,125

% Profit 5.0% 16.0% 5.0% -6.0% -17.0%

Table 4. Bid Projections Based on Allotted 5 Day Completion Time Compared to Actual Number o Days to Completethe Job.


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and lost parts are minimized. New or retrotted equip-ment provides fexibility rom job to job and helpsminimize bottleneck impacts.

Traditionally, engineering has been a consistentbottleneck in the casegoods industry. Ater the salesdepartment generates orders, manuacturing opera-tions must wait because the job has been delayedin the engineering department. Recent advances in

computer design sotware and databases have im-proved engineering productivity, but unless enoughskilled engineers are provided, delays will continue. Astechnology simplies manuacturing, more resourcesshould be allocated to the engineering departmentto input design inormation into the design sotwareor manuacturing support. It is critically importantthat the engineering unction be properly staed andmanaged to achieve the needed productivity and alsoto create a balance between sales, engineering, andmanuacturing.Ater understanding the power o prot scheduling

and the impact that early or late job completion canhave on protability, how do you determine whichjobs to bid on? The sales unction plays a key role indetermining whether protable jobs are sent to theactory foor.

Bids can be evaluated based on sales productivity.In the ollowing example, two jobs are bid with theewest number o shop days projected. The numbero shop days estimated is considered accurate andrefects the amount o work needed to complete thejob properly. An analysis o both jobs shows a largedierence in productivity per employee. Although Job

2 will keep the shop busier or a longer period o time,Job 1 is a higher quality job in that it generates higherannual sales revenue i sustained. The ocus is on costcontrol and running jobs as quickly as possible. Bykeeping the job pipeline ull o high-quality jobs, anexcessive percent prot is not required, which in turnwill help win bids. This is a key business leverage pointor the small job shop. Gaps and overloads in theschedule should be controlled as much as possible bythe sales department, who in turn should be con-trolled by management.

Superior Factory Floor ManagementThe modern manuacturing actory, in addition to

production scheduling and balanced manuactur-ing techniques, will also employ superior actory foormanagement strategies. Two important concepts areto 1) eliminate unnecessary layers o management and2) eliminate unnecessary paperwork. The old actorymodel oten had excessive middle management layers

that added costs to overhead rom unneeded support.Eliminating some o these layers results in a much fattermanagement structure and requires hiring highly quali-ed, sel-directed people and compensating them witha rewarding and attractive work environment and com-petitive wages, all o which will benet the companyin the long run. Paperwork on the actory foor can beeliminated with multiple computer stations that containthe companys production schedule. This simple inor-mation system is not supposed to be an MRP (MaterialRequirements Planning) or ERP (Enterprise ResourcePlanning) inormation system that tracks every mate-

rial move and labor unit. Instead, it is simply a replace-ment or the existing paper system that all plant leadersuse. By sharing the leaders inormation, the companybenets and inormation is transerred much more e-ciently. All employees will have the current schedule,drawings, and instructions rom the production sched-uler and management.

VLinking Manuacturing and Marketing

As noted in the rst section, domestic manuactur-

ers have the advantage o being located in a large andafuent market. The new urniture industry will likelyconsist o relatively small companies that have moredirect contact with their customers than todays bigbox urniture stores or even yesterdays domestic, butnow deunct, large manuacturers.

Just as the modern manuacturer will operate theactory dierently than in the past, marketing will bedierent. The new manuacturing process will be moreclosely connected to the customer, essentially with themarket pulling the product out o the actory. For ur-niture manuacturing, this represents a revolution, not

just an innovation. Small companies who cannot a-ord the high overhead o a High Point showroom willbe able to address the individual product and serviceneeds o their customers much more readily.

The ollowing are marketing advantages the newurniture manuacturers can use, based on theircustomer knowledge, regional presence, sales orcedevelopment, and service capability.

Customer Knowledge. New urniture manuactur-ers will devote more attention and support to their

Breakdown Job 1 Job 2

Job Bid $ 87,000$ 92,000$

# Company Employees 10 10

# Shop Days 12 18

Avg. $/Shop Day 7,250$ 5,111$

Annual $ Sales/Year 1,740,000$ 1,226,640$

Labor Productivity/Employee 174,000$ 122,664$

Table 5. Evaluating Bids Using Per Employee ProductivityMeasurements.


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marketing program. Domestic urniture manuacturerswill commit signicantly more resources to developingproducts that meet the needs o their customers. In-stead o copying the innovators at the last market, thenew urniture manuacturers will make new productsthat were not available at last market and meet thedemand or high quality, ast delivery, and competitivepricing. The manuacturer will oer a wide variety by

using fexible designs rom which the customer willselect readily available options that allow choices in di-mensions, nishes in stain or paint, hardware, mould-ing styles, and carvings. The well-run actory will notonly provide a high-quality product with competitivepricing, but good management controls will allowlead personnel to conduct external market researchto improve product engineering and manuacturing.This is a tremendous advantage over companies thatmoved oshore and disconnected their manuacturersrom product and manuacturing innovations.

Market research can uncover large niche markets

seeking a dierent look rom that o imported urni-ture. For example, imported casegoods tend to havelots o mouldings, carvings, and distressing that givean antique lookand also hide shipping damages.To many American customers, much o the importedurniture looks busy and is not what they preer.Domestic manuacturers could pursue a simpler look.Another opportunity lies in the growing interest insustainable woods. Furniture manuactured overseasmight contain a high percentage o endangered tropi-cal woods. There will be a niche market or urniturethat is marketed as containing woods rom the sustain-

able, temperate hardwood orests in North America.North Carolinas long history o making urniture

and cabinets began with simple adaptations o ur-niture rom Europe. The stories associated with suchutilitarian yet beautiul pieces oer a branding oppor-tunity. Furniture could be readily modied to accom-modate todays modern liestyles.

Regional Presence. Domestic casegoods manuactur-ers need strong regional sales to be protable. Manu-acturers will need to devote marketing resources togenerate a strong retail network in nearby states andmove product onto showroom foors. A consistent,

long-term eort will be required to regain foor spaceand consequently maintain and increase market share.

Manuacturers might need to develop nontraditionalways to market their casegoods. Marketing directlyto interior designers would be one approach. Usingthe Internet as an advertising tool is a must in todaysworld. At the other extreme is an Internet site wherethe customer sel designs within limitations speci-ed by the manuacturer. Internet sales are certainlypossible, but companies need a local agent to handle

delivery and service. The manuacturer may wantto own retail stores in growing metro areas (such asCharlotte and Raleigh in North Carolina). This wouldhelp develop brand recognition and could eectivelyeliminate the high markups o high-priced importedurniture retailers and provide a more competitivelypriced product.

Sales Force Development. Though it is common or

a urniture company to use both company and com-mission sales representatives, the modern manuac-turer must be proactive in the marketing process.The manuacturer must ully support any commissionrepresentatives that the company hires and ensurethat the commission sales representatives actively sup-port the companys goals. I sales are insucient, thenprompt action is required.

Servicing the Market. Obtaining repair parts quicklypresents a serious problem or imported urnitureretailers. Domestic casegoods retailers who solve theparts problem will realize a huge market advantage.

I a domestic manuacturer claimed to be able to shipout repair parts in a week, the entire retail urniturenetwork would notice.

It will not be a surprise, thereore, that the rst in-novation is to cultivate a yes attitude toward cus-tomers and retailers. Marketing innovation ocuses onunderstanding the market, developing a strong servicerelationship with the retailer, and having a strong, pro-active marketing eort and presence in the region.

In summary, today an opportunity exists or ener-getic entrepreneurs or existing casegoods manuactur-ers to produce high-quality, customized casegoods

in the United States that will oer strong bottom-lineprotability at high sales levels. Two-week turnaroundrom receipt o orders can be achieved by streamliningmanagement, manuacturing, and marketing and willprovide customer service and company protability.

VINew Growth Opportunity or FurnitureManuacturers

At the April 2008 High Point Furniture Market, N.C.State Universitys Wood Products Extension operated

a booth to promote less-used (lower valued) U.S. east-ern hardwood lumber or urniture manuacture. Thebooth displayed a dozen urniture items made o theseeastern hardwood species: beech, sycamore, black-gum, sweetgum, tupelo, wormy red maple, and hack-berry. The projects goals included promoting theselower-priced U.S. hardwoods, as well as looking or thenext business opportunities or urniture manuactur-ers. Extension specialists ound an interesting growthopportunity when several importing retailers and


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distributors asked them to nd U.S. contract urnituremanuacturers to replace current Asian manuacturersbecause o excessive inventory dollar investments, latedelivery, lack o repair parts, and quality issues.

For one distributor o imported urniture, special-ists located a U.S. manuacturer capable o providingthe same products using domestic wood species. Theimporter reported that the U.S. manuacturer o-

ered comparable pricing, lower order quantities, andshorter delivery times.

U.S. contract urniture manuacturers have an excel-lent opportunity to increase sales and protability bytargeting retailers and urniture distributors to replaceimported urniture with domestically produced prod-ucts. It is reported that at the April 2008 High PointMarket, there were approximately 2,500 exhibitorsshowing wares that consisted mainly o importedurniture and urniture accessories. A contract urnituremanuacturer ollows a ocused business strategy thatincludes design, engineering, and manuacturing, but

not distribution or retail sales. The contract urnituremanuacturer can avoid the high marketing costs as-sociated with selling directly to retailers, instead sellingto distributors, and thus operate with less investmentdollars and resources than the traditional urnituremanuacturer.

Focused StrategiesMany remaining U.S. urniture manuacturers have

downsized operations and no longer make all theproducts they once produced. Some companies havelost plant and equipment resources, while others are

losing experienced employees. In the uture, urniture

manuacturers should devote signicant resources tohelp employees acquire urniture-making skills, includ-ing design and engineering, equipment operation andmaintenance, wood products, business and manage-ment, and employee relations. U.S. urniture manuac-turers should reduce the range o their operations todecrease the nancial resources needed or acilities,equipment, and inventory. Having a strategy that is

ocused on a limited number o urniture supply chainactivities will result in lower operating costs than par-ticipating in many urniture supply chain roles.

Defning Business Strategies or New FurnitureBusinesses

The many tasks required to build urniture productsinclude: creating a urniture design, converting thatdesign through an engineering process, making com-ponents and assembled urniture, acting as a urnituredistributor, and selling retail urniture to consumers.The traditional, vertically integrated large manuactur-

er is being replaced by many protable niche players.These are summarized in Table 6 in terms o past, cur-rent, and uture models. These supply chain segmentplayers include:

1. The independent urniture designer who cre-ates innovative urniture designs and sells thesedesigns to others.

2. The support engineering rm that translates thedesigners ideas into a language that manuac-turers o components and urniture can use toprocess parts.

3. The component manuacturer who buys raw

ActivityPast Large

U.S. FurnitureManuacturer

Todays U.S. FurnitureManuacturer(in name only)

Future U.S. Furniture Model(as proposed by authors)

Furniture Design U.S. US U.S. Independent Designers andDistributors

Furniture Engineering U.S. US or Oshore U.S. Component and IndependentContract Furniture Manuacturer

Wood Components Mgers U.S. Oshore U.S. Independent Component

Manuacturers

Furniture Manuacturing U.S. Oshore US Independent Contract FurnitureManuacturers

Furniture Distribution U.S. U.S. U.S.

Furniture Retailing U.S. IndependentRetailers

US Independent Retailers US Independent Retailers

Table 6. Furniture supply chain activities and their location in past, current, and uture business models.


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materials and produces blanks and parts ready orassembly.

4. The urniture manuacturer who processes rawmaterials and purchased components into as-sembled urniture items.

5. The distributor who buys urniture rom manu-acturers and distributes to retailers. The urnituredistributor oten perorms the design unctions or

the manuacturers.6. The urniture retailer who has the storeront and

supporting outlets such as the Internet to sell ur-niture to the buying public, as well as to contracturniture buyers.

These six roles in the urniture supply chain can becombined into many variations to meet the needs othe market. The ollowing are typical business models:

1. The independent designer who receives either afat ee or a commission based on sales.

2. The design-build company that combines a

design oce where customers can meet with de-signers, with a small shop manuacturing opera-tion to make the urniture on site.

3. The component manuacturer who converts rawmaterials into blanks and nished parts ready orassembly.

4. The contract urniture manuacturer that cancreate its own designs to sell to contract buy-ers, distributors, and retailers, or cooperate with

designers to meet the specic needs o high-volume customers. The contract urniture manu-acturer makes products to ll purchase ordersand normally would not stock nished goods asinventory. Thus, the contract urniture manuac-turer would typically operate in a make-to-ordermodel.

5. The urniture manuacturer that can create its

own designs or use those o an independentdesigner or those o a customer, distributor, orretailer. The urniture manuacturer in the utureis much more likely to buy components instead ohaving the plant and equipment resources to pro-cess the raw materials into parts or assembly. Theurniture manuacturer can ocus on mass-marketproducts that create some volume and economyin pricing. Furniture manuacturers could stocka small amount o inventory as nished goodsready or immediate shipment. Perhaps the bestbusiness model or a urniture manuacturer is to

abandon the unctions that distributors and retail-ers better serve and ocus more on running themanuacturing operations.

In the uture, the strongest business models in termso protability will not be the traditional vertically inte-grated urniture manuacturer but one o the previous-ly discussed models that are more ocused and requirear less investment in plant, equipment, and inventoryresources.


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100 copies o this public document were printed at a cost o $400.00 or $4.00 per copy.

Phil Mitchell and Harry WattNorth Carolina State University

Raleigh, North Carolina

Published by North Carolina Cooperative Extension

Distributed in furtherance of the acts of Congress of May 8 and June 30, 1914. North Carolina State University and North Carolina A&T State University commit themselves to positive

action to secure equal opportunity regardless of race, color, creed, national origin, religion, sex, age, veteran status or disability. In addition, the two Universities welcome all person

without regard to sexual orientation. North Carolina State University, North Carolina A&T State University, U.S. Department of Agriculture, and local governments cooperating.

3/09 VB GM AG 712W

strategies for the new american furniture industry

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