CHAPTER 1

Introduction

The furniture industry in the United States draws on abundant North American forest resources and skilled workers for its basic supplies, flourishing since the landing of the Mayflower as commemorated by a company in Maine that traces its name from the first pilgrim to purportedly touch the New World land. This book discusses the evolution of furniture from a local to a regional and now globally sourced, supplied, and marketed industry, with an extensive network that continues to shift among clustered locations.1 Changes include how as well as where furniture is made, shipped, and sold. Subsequent chapters include a history of this important industry supplying basic as well as luxury commodities and its shifting geography involved in creating and catering to the rise of both a manufacturing and a craft-based middle class.

The second chapter considers the supply chain that pulls components of manufacture and retail together. Chapter 3 examines how the industry operates covers the role of furniture shows and other demand drivers, the impact of new technology reshaping where and how the industry functions, and a typical factory tour. The fourth chapter presents illustrative case studies of major firms operating in the United States, ranging from higher-cost and more hand-crafted “Made Here” firms to highly manufactured foreign direct invested companies, including wood, upholstery, and textile corporations. Countries and strategies of major competitors also catering to the U.S. market are analyzed, along with policies to manage their market impact. The next two chapters consider issues involved in the global extension of this industry, concluding with a summary of the challenges—and opportunities—presented in a time of transition. The remainder of this introductory chapter presents themes such as lean manufacturing, re-shoring, and in-sourcing, which permeate and illustrate points throughout the entire book.

A particular focus of this book falls on the furniture industry’s latest relocations—back to the United States in some cases, and to a broadening range of overseas countries in others—as an overall reflection of the changing geography of manufacturing. An expanding vocabulary regarding international business includes references to moves from “outsourcing” abroad to “re-shoring” (moving business back to the United States) and “in-sourcing” (utilizing U.S. firms for supplies). “Glocalization” refers to a globally located company seeking to appear as if it were a local/domestic firm, for example, by emphasizing its services at the retail location. Originally a Japanese business concept for taking initially local products to a wider market, the business model is modified to fit local preferences and practices. A related popular jingo exhorts individuals to “think local, act global.” Corporations selling products in varied countries and to various ethnicities need to “glocalize” by adapting their portrayal to segmented markets. “Hemispherization”, or “near-shoring”, refers to the practice of moving a business from more distant overseas locations, particularly within Asia, to somewhere in the western hemisphere. This is usually done to reduce time and other uncertainties in shipments. These shifts are detailed later in this chapter. Interest lies with the industry’s mirroring of the U.S. economy and the improvement in its domestic manufacturing picture since bottoming in 2009. An improving domestic market particularly since the year 2011 is shown by positive revenue reports, the number of businesses, employment, exports as well as imports, wages, domestic demand, and a jump in 2012 housing starts, as shown in Figures 1.1 to 1.3.2

Figure 1.1 Number of U.S. furniture-manufacturing businesses in 2001–2011

A steady decline in the number of firms since the late 1980s, detailed in Chapter 3, dropped off more steeply along with the economy by 2009. The number of private furniture-manufacturing firms dropped from 25,142 in the first quarter of 2002, for example, to a recession recovery figure of 18,251 by the third quarter of 2012, still a noticeable decrease. The number for 2013 remained steady, but by mid-2019 only 9,881 furniture businesses were reported. Looking at only the number of businesses is somewhat deceptive as a measure of economic well-being, however, since mergers and acquisitions, detailed in Chapter 4 on individual firms, reveal the consolidation of the industry into larger corporations—sometimes under very different owners.

In the 5 years from 2014 to 2019 employment in the furniture industry grew 0.6 percent, along with increased revenue. In the same time period, the market size of $27 billion in 2019 reflected a 1.4 percent growth, demonstrating a 1.2 percent faster rise than typical in the overall manufacturing industry. The furniture industry ranked 19th in manufacturing employment by mid-2019.3 Initial recovery credit goes in part to improvements in production processes such as lean manufacturing as well as an overall national economic recovery affecting home purchases that fueled furniture sales as well.

Lean Manufacturing

The change agent winds of Schumpeter’s “gales of creative destruction” blew particularly hard in regions reliant on traditional industries, whether in the automotive firms of the Midwest or in the U.S. furniture industry. These production clusters share a significant position involving older manufacturing regions and historically strong industries. The phenomenon of a slow rate of adoption and diffusion of new forms of work and production organization is similar in such areas, but it can also be influenced by the introduction of ideas from, rather than the physical competitive presence of, foreign manufacturers. The reinvigoration of auto manufacturing in the Midwest occurred in firms that integrated and sustained these new adaptations, illustrated by the collapse of manufacturers who did not do so. The devastation of furniture manufacturing over the past two decades is a well-documented occurrence, with the relocation to Asia of many activities linked to this process commonly attributed to labor cost savings, despite the lack of unionization throughout the generally low-wage South, where furniture manufacturing is concentrated. Far less well known is the Schumpeterian creative response to such economic destruction, discussed below.

The major process model distinguishing surviving from unsuccessful furniture companies is clearly lean manufacturing. Major components discussed below include, in no particular order:

• •cooperative, consultative relationship between employees and managers, customers and manufacturer, and company and suppliers;
• •customization through small batch sets and customer-supplied material;
• •quality over quantity;
• •fast delivery of furniture to customer, and just-in-time delivery of components to factory;
• •cell production model, with workers operating within a painted surface and supplies flowing by delivery of supplies via “water spider” employees pushing carts;
• •strict inventory management, with open storage designed so that inventory remains clearly visible and thus easily adjusted;
• •white boards used to openly chart performance of teams, display problems, and group suggestions for improvements;
• •wage rather than piece-based pay, necessitating cross training;
• •pull rather than push tasks, so work flows smoother with less pile up; and
• •implementation of suggestions decided by mixed teams of workers and managers.

The search for process innovations came from a sales-connected profit decline motivating imitation of a demonstrably successful technique, in the case of furniture leading to “lean manufacturing,” exemplified initially by the Toyota Production System (TPS) in the automobile industry. Adopters are heterogeneous (manufacturers, suppliers, transporters), and subsequent adaptation (hybridization) is a matter of selection by individual firms, reflecting the local firm’s cultural environment. Implementation’s ability relies on the agility of the company (its absorptive capacity) and the commitment of its manager(s). The process improvement system of lean manufacturing (LM) seeks to focus the expenditure of resources on the creation of value for the end customer. Any other time/effort investment is to be eliminated, hence the term “lean.” The historical roots of TPS come from the “Training within Industry” program developed by the U.S. military and Britain’s Spitfire production during World War II, before it traveled to Japan and bounced halfway back to the United States. TPS was first applied in the United States at the United Motors Manufacturing plant, a joint venture between Toyota and General Motors.

The Toyota system’s uniqueness is its primary focus on developing human resources as the foundation of its technical system—a key factor occasionally overlooked by adopters since changing the corporate culture is harder than instituting new procedures. Thorough implementation usually takes several years at best. Toyota’s technical system is often pictured as a house with stability and standardization as the foundation, with specific strategies such as just-in-time (JIT, meaning delivery of assembly components as they are needed) serving as pillars to support the roof and ultimate target of customer satisfaction. Each of these major pieces of the technical system uses the problem-solving skills of the employees to identify and eliminate nonvalue activity, or wastes. The classic “Seven Wastes” are motion, waiting, conveyance, correction, overprocessing, overproduction, and inventory. An eighth waste is often identified as not utilizing human talent.

The stated underlying purpose of the Toyota system is to improve humanity through a product. The main values needed by companies and managers to achieve this are respect for people and continuous improvement. These values are used in the TPS system to yield a higher-quality product with optimum reduction of time, cost, and effort. In the TPS model, management practices are to support the role of labor on the shop floor. Workers are incentivized by recognition and implementation of their suggestions for input into the design, development, and improvement of product and process technology. Kaizen is the Japanese word frequently used to describe the constant search for improvement. Other TPS practices include value stream mapping from suppliers through the production system to promote a continuous flow, reduce the need for inventory, and place a premium on the maintenance of standardized work to achieve quality-level targets. Common components of lean systems include job rotation to foster interest and ability while ensuring that work is accomplished with minimal/nonexistent delays, multiskilling (also called crosstraining) of workers to increase their flexible implementation, small group problem solving to draw on various skills for insights, decentralized decision making, and increased overall employee participation. Most research on TPS implementation concerns auto and electronics sector firms, with a sliding scale of successful adoption between segments of these two industries.

A TPS/LMS priority focuses on optimizing the interrelated flow of production, ideas, and communication. One form of this is kanban, a visual communication method used to trigger replenishment of parts internally and from suppliers. A system of colored cards or labels is often used to indicate the schedule of the logistical chain flow that is being managed. “Pull,” or building to order (custom), rather than target-matching “push,” techniques are also part of the TPS concept. Creating and maintaining a long-term relationship with suppliers, who are also integrated into this process either internally or to implement JIT, is a related aspect of LM, a goal-oriented system that lends itself to a variety of tools adapted as means to an end. Toyota’s Lean Mentor (sensei, or teacher) system serves as a way of supplying experts to provide advice, where and when requested, on implementing TPS and related processes. Direct American roots of TPS can be found in the production system-related admonitions of Benjamin Franklin, Frank Gilbreth, Frederick Taylor, and Henry Ford.

“Lean” as a form of economic organization takes place within varying social contexts, within which individual managers need to operate as supporters of the floor workers. Various strands of literature emphasize different aspects of “lean,” from cost control to speed enhancement and the creation of a participatory production culture focused on teamwork to enhance quality; leanness therefore ranges from a set of techniques to socio-technical arrangements. Three stages of adoption include transitional slimming of the organization, achievement of leanness as a conclusion including suppliers as well as producers, and leanness as an ongoing management process to sustain the organization. Promoting and achieving leanness involves a complex process of persuading workers, managers, and occasionally owners to adopt this thorough-going system. The key factor in the success of TPS models lies with giving workers respect and responsibilities (genba, or people as the core) not through top–down authority imposition. This pluralistic relationship can be fatally damaged by the usual American response of cost minimization to combat competitive pressure. The lean method is seen as globally transferable since it can be modified to fit particular contexts at the firm level. Locally sensitive managers need to pay explicit attention to hybridization as a learning process. As stated by Porto and Smith (2003),

[o]rganizations most successful at transformation… designed tools that fit their specific needs…. Lean tools may be the visible portion of a lean transformation but they are dependent on the more invisible foundation of a culture that supports new ways of thinking… a foundation of a people-based culture: respect, responsibility for problem solving, and total involvement with improvement.4

To summarize, LM/TPS key goals are to:

• •Shorten production time;
• •Increase employee problem solving;
• •Increase employee self-directed teamwork;
• •Improve product/service quality;
• •Improve work process standardization;
• •Reduce work-in-process errors and rework;
• •Improve workflow;
• •Push-pull cards identify production problems; and
• •Incorporate user feedback in innovation process.

Steps toward application of LM in the furniture industry usually begin with a consultant who works with a chosen production unit or targeted process to study, transform, and exemplify the system improvement. Steps (literally in the case of a worker) are placed on a chart using colored lines to indicate flows involved. The distance and number are used to pinpoint places where time and effort waste occurs and can be eliminated. A workspace, for example, can then be compressed so all the supplies that a worker needs are readily at hand and a yellow line drawn around to delimit the work area. A group of workers (sometimes referred to as “water spiders” since they hop from station to station) is deployed with carts carrying items needed by production employees so work does not stop or experience delays due to a supply shortage. Pegboards holding tools and supplies are often used as an organized, close by visual storage space. Another characteristic sign of LM implementation is a large white board, used at the daily morning and afternoon meetings to list teams and their accomplishments/needs. Employees are encouraged to assist with offering suggestions for improvements. As a highly visible display surface, white boards are also used to post inventory data (e.g., how much expensive leather of different colors is utilized in production over a certain time period). Workers are encouraged to write improvement suggestions at any time, and authors of adopted practices are photographed along with their innovation and the picture posted in a visible spot. Companies are encouraged to supply lockers for workers to store their belongings (so only work material is at their station) and an eating area so food consumption occurs in a designated place, as organized as all other specialized activities. Yellow floor lines are tightly drawn around storage bins. They function as fast visual references if excessive inventory spills over the carefully measured storage compartment.

Figure 1.2 demonstrates the accompanying gradual increase in employment over the recession recovery/lean, adoption time period, with long-term national and global competitive consequences detailed in Chapter 3. Although it is not clear in the chart, there was a slight but not insignificant uptick in employment from 2012 to 2013 of 350,000 to 351,000 according to projections by the Bureau of Labor Statistics. The more significant and unfolding story associated with re-shoring moves is the underlying economics that make such a move attractive. Calculations reflect not only the diminished wage differential between China and the United States but also the investment in upscale technology and machinery reflected in increased productivity with fewer workers needed to produce more goods at lower cost overall.

Figure 1.2 Employment in the furniture industry, 1990–2013

Re-shoring and In-sourcing

The hemorrhaging of businesses hopping overseas has slowed, with some shifting in overseas sourcing countries and some increasing activity domestically. Causes and consequences for the U.S. industry are explored in the following chapters. A sign of the improvement in housing starts and disposable income is reflected in the rise of both exports of furniture from and imports of furniture to the United States (Figure 1.3). Note the difference in values in the Y-axis, however, as imports remain a factor higher than the value of exports. Less visible in the numbers but importantly underlying them is the difference in quality represented by the higher price exports, the more mass manufactured so less expensive imports, and the custom niche production for the domestic U.S. market that also improved at an accelerated pace since 2011. The export trend indicates effects of a weaker U.S. currency and diminished global demand from major developed world customers, discussed in Chapter 3.

Figure 1.3 Furniture import value to the United States in million $US from 2002 to 2017

Figure 1.4 illustrates a slight twist in the tale of companies shifting locations around the globe in search of ever lower cost (usually wage-related) advantage in a less-skilled industry: the increasing value of furniture-related business done in the United States. Several recent studies indicate the increase in manufacturing and service-related business such as furniture design and sales re-shoring and rehiring in the same areas where it was strong a decade ago in Mississippi and North Carolina, according to the Boston Consulting Group. The value and amount of furniture imports to the United States also increased, and even more sharply, over time as well. Chapter 2 breaks these trends down by furniture segments, while Chapter 4 provides details by countries.

Figure 1.4 Furniture export value from the United States, 2000 to 2018

Main points to remember regarding re-shoring movement include the following triggers for firms considering switching business out of China:

• •Increases in the cost of oil push increases in the cost of shipping across the Pacific.
• •Since the downturn in 2008, shipping firms have been taking boats out of business (putting them in “mothballs”) to avoid expensive trips with less than full loads, particularly relatively empty backhauls from the United States to Asia since far fewer goods flow in that direction but ships must complete the round trip to pick up Asian manufactures. Shipping firms subsequently raise rates, shift schedules, and remain tough to forecast as they opt for flexibility on their part—and uncertainty on the part of customers.
• •The gradual and continuing rise in the value of the Chinese yuan currency in relation to the U.S. dollar makes exports more expensive from China relative to other locations.
• •The previous surge in population from rural inland areas migrating to major Chinese east coast factory locations largely in the Pearl River delta region has led to:
• ○tapering off of migration since those who could leave already left, and disadvantages of migration now more apparent;
• ○more companies in clustered locations competing for same worker pool, which tends to drive up cost of workers and make them more willing to switch jobs;
• ○workers becoming more affluent, demanding higher pay, fewer hours, and more benefits.
• •Intellectual property infringements such as copying U.S. furniture designs hurt competitiveness in an industry where design is very important. Some Chinese factories prohibit visitors to protect themselves from this risk, while others appear to utilize design elements as original equipment manufacturer (OEM) suppliers from their contracted customers.
• •Regulations in foreign countries remain opaque, while enforcement remains disadvantageous for foreigners, according to anecdotal evidence.

Main considerations attracting business activity back to the United States include:

• •Still an adequate number of appropriately skilled workers in locations where furniture was manufactured previously, especially in upholstery.
• •U.S. recession increased number of unemployed workers willing to work for relatively modest wages.
• •United States and some states offering incentives for employers.
• •Market for furniture larger than in China and growing stronger as recession is ending.
• •Equipment available at good price.
• •Manufacturing process improved with move to lean procedures and highly efficient machinery, lowering costs with fewer workers needed.
• •Closer to market means:
• ○quicker delivery competitive advantages, and
• ○ability to maintain control over quality during construction.

Main considerations for business looking at relocating to non-China and non-U.S. locations:

• •environmental regulations in the United States still strong and impact furniture processes.
• •wages still higher than in many other countries (South America, Southeast Asia, particularly in Vietnam).
• •U.S.-China trade conflict tariff increases.

Examples of re-shoring efforts include both successful (so far) and less successful efforts. North Carolina’s Lincolnton Furniture Company, in the town of the same name, eventually abandoned its attempted re-starting. The owner who opened the business in 2012 had sold it in 1997 to another U.S. manufacturer, who gradually shifted an increasing amount of work overseas until closing the plant. In the interim, furniture industry wage rates in China rose throughout the decade from a little over 50 cents/hour to approach $3/hour, and U.S. consumers were reconsidering the trade-off in time to delivery and quality. Productivity efficiencies achieved by utilizing highly efficient machinery also made “Made in the U.S.” more potentially profitable than in the labor-intensive past. When Lincolnton eventually closed, it signaled the finality by selling off its equipment.

Stanley’s youth furniture division in Robbinsville continues its efforts to increase manufacture of relatively high-end children’s furniture in the United States. Given previous issues with foreign laxity in safety and chemical compounds, Stanley hopes to link the “Made in the USA” label to parental willingness to pay more for peace of mind. Stanley shuttered but maintained its plant intact during its hiatus, thus it was easier to resuscitate—or sell if that is the ultimate decision. Vaughn Bassett successfully pursued the same strategy. Though still rare to see a new company opening in the United States—or a former company unshuttering—more common sights are existing companies hiring more workers to meet the demand uptick, or a merged company seeing more activity as the new management increases its U.S. business. This is particularly the case on the upholstery side, which continues to thrive in the United States by utilizing skilled craftsmen for custom work. An example of reverse shoring is Chinese company Samson’s purchase of U.S. company Craftmaster, whose upholstery business it subsequently returned to the United States.

From early 2010 to early 2012, a Boston Consulting Group study showed that wage rates in China climbed by 15 percent, while shipping costs rose precipitously commensurate with the price of fuel and the reduced shipping capacity due to mothballing from demand fall-off during the recession. These factors put furniture, along with six other sectors, including electronics and transportation goods, most likely manufacturers to return to the United States. Almost half (48 percent) of the largest U.S. manufacturers (sales in excess of $1 billion) indicated that they planned to re-shore. Indications are that this is happening very gradually in the case of furniture, and more in some components (upholstery) than in others (case goods). The tipping point for business owners is a 10 to 15 percent differential that makes it worthwhile to begin shifting at least some of their business—whether manufacturing, which requires more sunk costs, or more mobile design, logistics, or marketing functions—back to the higher-skill, higher-pay control headquarters in the United States according to a 2012 Harvard Business School study. Hemispherization to a closer low-cost country such as Mexico is attractive by a wage rate comparison, but violence, corruption, and low-quality infrastructure impact considerations of manufacturing relocation for fragile furniture, other than low-skill, low-pay, and less-perishable upholstery processes.

Due in part to its position on the low-cost end, Mississippi joined North Carolina in losing large numbers of furniture-manufacturing jobs in the past 7 years alone. Mississippi State University hosted a Re-shoring Initiative to promote the overall competitive price of manufacturing in the United States, considering the costs outlined above and the changing wage rates. A study purportedly showed that 25 percent of manufacturers who left the state are considering returning (2012). Another study done by the Hackett Group found that up to 20 percent of offshore manufacturing is liable to re-shore by 2014–2015 for the same shifting cost calculations. A noted columnist for the leading furniture industry publication indicated his knowledge of at least five companies looking for a U.S. expansion site in early 2013.

A report by Inc. magazine indicated that since 2016 a reshoring initiative (encouraged by a nonprofit of the same name) began to abate the flood of U.S. jobs and businesses going overseas, including furniture business. Factors go beyond decreasing cost differences between domestic and foreign manufacturing (largely linked to wage costs) to include a broader accounting of expenses involved with tariffs, travel, shipping, time, reduced quality due to use of unapproved subcontractors, and intellectual property violations.5 Also in 2016, a Reuters’ news analysis of the state of furniture manufacturing in heartland Hickory, North Carolina, charted the flow of jobs returning from the previous decade’s tsunami to China. Since 2010, the metro area added 28,000 manufacturing jobs, with furniture manufacturers contributing 30,000 jobs in that time period. Workforce challenges included retiring older workers, younger workers migrating to larger cities, and classes opened to train workers in higher skill custom manufacturing to entice remaining workers.6

In 2017 the U.S. furniture manufacturing giant La-Z-Boy indicated it was heavily investing in facilities and adding manufacturing jobs reshoring business to Dayton, Tennessee. Major considerations included government incentives and proximity to customers. However, in 2018 global supply chain activity subsided in the face of uncertainties owing to U.S.–China trade relations flux. Reshoring subsequently slowed as manufacturers wait to make location decisions such as whether to pick a new place outside China—the current target of trade disputes—or shorten the supply chain back to the United States. Most likely activities to remain overseas are low-skilled positions, rather than tariff-sensitive goods manufacture. Cost considerations of relocating or expanding in the United States are also seen as contributing to “offshoring inertia” reinforcing reluctance to act.7

A question remains whether the practice of foreign—particularly Chinese—firms purchasing U.S. furniture makers and suppliers will lead to the opening, re-opening, or maintaining a plant—or just brand name acquisition as has happened previously. The giant Hong Kong trading company of Li and Fong, for example, are reputedly interested in adding a furniture brand to their portfolio of diverse companies, but not in order to manage one in the United States as much as take advantage of current low interest rates and low selling price for such firms. While the Chinese government encourages its companies to go abroad in the form of outward foreign investment, it is a policy combining the opportunity to learn foreign operating techniques with ways to balance the currency flow and spread risk. This strategy is an acknowledgment of the major shifts underway in this dynamic reconfiguring manufacturers, currently adjusting to new ways of production and marketing on a global scale.