Furniture Makers or Movers?

[Jon Katz]

Following a trend I wrote about in IndustryWeek’s August cover story, some furniture manufacturers may move operations back to the United States because of rising transportation costs and currency fluctuations.

According to Reuters news service:

Since 2000, scores of U.S. factories have shut down as furniture companies shifted manufacturing to China in search of lower costs. But as rising inflation drives up factory wages in China and high oil prices make shipping costlier, some companies are considering moving back home.

One furniture maker, red egg resources, left China for High Point, N.C., after inflation and ocean freight charges nearly wiped out the 40% or more cost advantage provided in Asia. Another furniture maker cited by Reuters said he manufactures in the United States because of the shorter delivery lead times.

As I mentioned, though, in the IW article “Welcome Back U.S. Manufacturing,” the reality of the situation is that returning to the United States is unrealistic for many companies. Similarly, Reuters reported that many furniture makers are finding it hard to return, primarily because of steep factory start-up costs and lack of skilled labor. The credit crisis that began with failing mortgages but has now led to tighter terms on virtually all loans also makes it tougher to finance a new plant.

Instead, U.S. manufacturers may look to other offshore or nearshore countries to produce their products. In Hooker Furniture’s case, the company is switching some of its production to other developing countries such as Vietnam, Indonesia, the Philippines and Honduras, Paul Toms Jr., chairman and CEO of Hooker Furniture Corp., told Reuters. That’s because much of the furniture-making workforce has moved on to other industries, leaving few skilled wood workers, Toms says. "So it's not feasible even if we thought we could produce a better value product here than we could in Asia," he added.

Either way, when manufacturers move back home or to another low-cost country, how well did they plan their sourcing strategies to begin with? What are the costs of moving assets, locating a new facility and finding labor each time a manufacturer moves? What happens if the dollar rebounds, domestic costs rise and dire predictions of $200-a-barrel oil don’t come true?

Or, more importantly, how committed are these companies to reducing waste and operating as lean and efficient as possible?