BUSINESS BRIEFING

Following hard on the heels of the Chrysler bankruptcy, General Motors filed for reorganization on June 1. What do the complicated, monstrous bankruptcies of two American motor car icons have to do with the woodworking industry? The answer is unmistakable: the rule of law and the capitalist system as we have known them are at risk due to the handling of those bankruptcies.

The Restructuring Plans

The plan for Chrysler is for the U.S. government to take an 8 percent stake in the new company in exchange for the $4 billion loan extended last December. Note that this stake is valued at roughly 20 cents on the dollar, an ironic result given the Obama administration’s stated aim to protect the taxpayers’ interest in the bailout. In addition the government will provide $8 billion to run Chrysler through bankruptcy and beyond.

The United Auto Workers union (UAW) will end up with a 55 percent equity interest plus a $4.6 billion note paying 9 percent due in 2022. The sum of these two interests could result in the full recovery of their $10.6 billion claim.

The banks and others whose bonds were originally valued at $6.9 billion and who had first lien on Chrysler assets will end up with $2 billion, 29 cents on the dollar. These same banks, of course, took TARP money and gave up their legal claim under pressure from the government. 

The Canadian government gets a 2 percent share for $2.4 billion to help finance the company through bankruptcy.  Chrysler’s owners, Cerberus Capital, get nothing but will contribute $600 million to pension obligations. Italian motor car company Fiat gets a potential 35 percent stake in return for “transfer of technology for small, efficient cars.”

As for GM, with its $82 billion in assets and $172 billion in liabilities, its GM common stockholders will be wiped out.  The plan calls for the government to own 60 percent of the new GM; the UAW’s health care fund, 17.5 percent; and the Canadian government, 12.5 percent. Existing bondholders will own only 10 percent plus warrants allowing them to buy up to 15 percent of new GM equity. 

In setting GM’s new structure, the government is providing a sweet deal for the UAW. In exchanging $40 billion in loans into a 61 percent equity stake, the government pushes the UAW’s bonds up the seniority ladder. Experts predict that the union will emerge with 60 to 70 cents on the dollar versus the 15 cents they anticipate other unsecured bondholders will recover. 

And don’t forget that GM will require at least another $30-50 billion in debtor-in-possession financing before it’s over.

The most interesting element in the GM deal is the UAW’s decision to refuse the government’s original offer of a 39 percent equity interest. Instead the union took 17.5 percent in common stock, $6.5 billion in preferred shares that will pay $585 million a year, and a $2.5 billion note. In doing so, union officials admitted a fear “that GM ownership could eventually be worth very little.”   

As Barron’s put it, “…never has an American union done so well at the expense of shareholders and creditors.”  Wonder no more about Obama’s definition of empathy, a word being bandied about in describing his selection for the Supreme Court. The word evidently means stepping on one party’s legally-ensured interest to the benefit of another who is more politically favored.

Many believe these deals amount to the largest nationalizations in history. More importantly, these actions were taken by the executive branch of the federal government with little, if any, congressional oversight. As Senator Johanns (R-NE) said, “I never would have believed that the government could buy GM without a hearing, without a vote. There are billions of dollars at stake here.”

The Outcomes

The primary impact is twofold: 

• More government intervention in the economy – Treasury Secretary Geithner stated last April that “the goal is our government will emerge from this process having a better ability to not only manage the banking system but also to manage the whole economy with better control.”  For believers in the free market, these words may be the most dangerous words Business Briefing has ever heard from a high-level government bureaucrat.
• A slumping U.S. dollar, more costly capital, and inflationary pressure – The restructuring deals have overturned years of legal precedent that provided the first lien to senior bondholders in a bankruptcy. As a result, the administration has given investors every reason to move capital out of the U.S. For years the U.S. has been the safe harbor for capital looking for good returns. That status has evaporated. Check out the recent rises in the British pound and the Canadian, Australian, and New Zealand dollars. Witness the Chinese pushing commodity prices higher as they hedge their huge, U.S. dollar-denominated investments.

The rules of the game have been changed and the consequences, both intended and unintended, will reverberate for years to come. Some examples are:

• The ability of the new auto companies to borrow will be impaired – Would you buy their bonds knowing their majority owner plays loose with the rule of law?  Indiana Treasurer Richard Mourdock manages that state’s pension funds and watched as their Chrysler bonds became worthless. His funds will no longer invest in any secured debt of GM or other company that receives bailout money.
• The labor agreement approved by the UAW must be renegotiated with the government every two years – Who will the government favor when those negotiations occur during an election year?
• GM will be unable to import small, fuel efficient cars – As a result, the company is seeking to sell its Opel operation in Europe. The government, however, is prohibiting a sale to anyone wanting to ship Opels to the U.S.
• GM and Chrysler, with the government as majority owners, will now be competing – That situation sets up a potential price war as both vie for sales in a reduced U.S. market. How will future government financing be parceled out?

Politics is already involved even though both companies remain in bankruptcy:

• Rep. Barney Frank (D-MA) intervened to save a GM distribution center in Norton, MA, that had been slated for closure under the restructuring plan. 
• Senators are grilling GM and Chrysler executives on the plan to close thousands of dealerships. 
• Under pressure from the Michigan congressional delegation, GM has agreed to reopen two idled plants to manufacture compact cars that were originally to be imported.

Does every member of Congress now believe he/she knows more about the car industry than GM’s CEO?

Don’t forget that government interference with import rules and mileage standards was a primary reason for the failure of America’s car companies to compete head on with the Japanese. By the time they caught up in quality and efficiency, it was too late. Buyers had found alternatives in the Japanese, Korean, and German carmakers and were sticking with them.

The other problem is industry-wide overcapacity. World carmaking capacity is fully 50 percent more than demand.  Putting the right capacity in the right place will be a key prerequisite for the success of GM and Chrysler. 

Capital, talent, and ideas go where they are well treated. If investors see their money being ill-treated, financing innovation in our country will be stymied. The end result will be no growth, a lower standard of living, and importantly fewer funds for rebuilding our manufacturing base. We need manufacturing. No one has proven that financial engineering and flipping hamburgers can sustain the prosperity the U.S. is accustomed to. In fact, the past eighteen months have proven the opposite to be true.

Bottom Line:  If the government is serious about rebuilding these companies, it will (a) hire the best talent available, (b) charge these management teams with maximizing profits for the taxpayers’ benefit, and (c) leave those teams alone. But is such non-political management possible?  Stay tuned.

Economic Note

1.  American men and women survive cancer at an average rate of 65 percent versus 46 percent in the U.K.

2.  93 percent of Americans diagnosed with diabetes receive treatment within six months; in Canada, only 43 percent; and in the U.K., only 15 percent.

3.  90 percent of American seniors needing a hip replacement get one within six months; in Canada, 43 percent; and in the U.K., only 15 percent.

4.  In the U.S. there are 71 MRI or CT scanners per million people; in Canada, only 18; in the U.K., only 14.

5.  11.7 percent of low income Americans claim to be in excellent health; in Canada, only 5.8 percent.
 

Kitchen Cabinets

Sales of cabinetry continue to free fall from their high reached in November 2006.  According to the KCMA’s Trend of Business Survey, April cabinet sales fell by 32.5 percent versus the same month last year. Year to date cabinet sales have dropped 32.4 percent vs. 2008. These performances follow poor results in 2008 vs. 2007:  down 10.7 percent for the month of April and 11.6 percent year to date. Through April 2009 stock cabinet sales are down 23.1 percent, custom sales down 41.2 percent, and semi-custom sales off 38.6 percent. With stock cabinets being lower in price, most of this sector’s weakness is in higher-priced cabinetry. Are builders and remodelers seeking value in lieu of customization? Business Briefing will keep an eye on future data for any trends that may be emerging in the mix of U.S. cabinets.

At the company level…

1. Masco Corporation, owner of the Merillat, KraftMaid, Mills Pride, and Quality Cabinets brands, reported a 33.7 percent decline in its 1Q2009 cabinet sales. For the quarter cabinet sales totaled $395 million vs. $596 million last year. Operating profit fell from 4.7 percent to (7.1) percent.
2. American Woodmark reported its 4Q2009 revenues at $140.7 million, down only 1.8 percent against the same quarter last year. Sales continued to benefit from retailer promotional activity. Analysts, however, believe that sales will follow the industry downtrend after the promotion-driven backlog is shipped. The company announced the closure of its Berryville, VA, plant along with the oldest of its three plants in Moorefield, WV. According to management these plants are “outdated…and have limited ability to benefit from modern manufacturing techniques.” In addition their Tahlequah, OK, plant will be idled until such time as market conditions improve.  This restructuring leaves the company with eleven manufacturing facilities. 
3. Omega Cabinetry, division of MasterBrand Cabinets, has closed its Clinton, TN, plant and reduced the work force by 100 at its Waterloo, IA, facility.

Home Furniture

Incentives for NC Furniture Makers

It seems that counties are now recruiting new business with cash incentives, a tool heretofore used by state business developers. In North Carolina, Caldwell County commissioners approved payment of $500,000 to assist La-Z-Boy in relocating a plant from North Wilkesboro, in Wilkes County, to a vacant plant in Lenoir. The move will end the 257 manufacturing jobs in the 430,000 square foot North Wilkesboro American Drew plant. The funds will initially be used to relocate a print line and other manufacturing equipment to Kincaid Furniture’s Plant No. 6, which had been vacant for three years. Under the agreement the remainder of the funds will be paid out in return for Kincaid keeping 200 existing jobs in Lenoir plus hiring 30 new workers for at least five years.  Both American Drew and Kincaid are subsidiaries of La-Z-Boy.

Two other plant consolidations have recently occurred under the auspices of incentives. Stanley Furniture moved it Lexington, NC, operations to its plant in Robbinsville, NC, and Broyhill reopened a plant in Lenoir and closed one in neighboring Taylorsville.  Each of these moves affected more than 300 workers. The funds for these relocations came from the State of North Carolina. 

Mississippi Governor Vetoes Tax Break for Furniture Makers 

Legislation reported in the last issue aimed at saving cutting and sewing jobs in the state’s upholstery industry was vetoed by Gov. Haley Barbour. Barbour indicated that the industry executives disagreed as to whether the bill’s tax credits would cause producers to retain jobs in that part of their process. The bill provided a $2,000 tax break for each cut-and-sew job. Many of the 8,000 jobs lost in Mississippi since 2000 have been in that job classification.  Upholstery companies often choose to move these jobs offshore and purchase cut-and-sewn kits ready to upholster on domestically-built frames.

Chinese Baby Furniture Company Pleads Guilty to Smuggling Illegal Wood

Style Craft Furniture was fined $40,000 and placed on three years of probation for smuggling cribs containing internationally protected wood. The company listed the wood as New Zealand pine and Brazilian marupa on shipping documents when in fact the wood was ramin, a tropical species protected under the Convention on International Trade in Endangered Species (CITES). CITES requires that the country of origin issue a valid export permit evidencing that the export is not detrimental to the species’ survival. 

Snapshot of the Furniture Industry in the United Kingdom

Much like the U.S., the furniture industry in the United Kingdom has been ravaged by low-cost imports.  Following are some interesting facts about British producers:

• The annual sales of British furniture manufacturers totals £9.6 billion (US$15.8 billion).
• The number of producers fell from 7,479 in 2003 to 7,327 since 2006 – Only 315 have annual sales greater than £5 million (US $8.2 million).
• Only 65 firms have in excess of 250 employees, down from 80 in 2004 – Most are tiny with 3,800 firms employing four or fewer people.
• The value of imports into the British market in 2007 was £3.99 billion (US $6.6 billion) – Imports accounted for about 44 percent of the market in 2007.

At the company level…

• Furniture Brands International, the second largest U.S. furniture maker/importer, announced an operating loss of $2.9 million for its 1Q2009. Sales fell to $357 million vs. $477 million in 2008, a drop of 25 percent.  FBI is the parent of Broyhill, Lane, Thomasville, Henredon, Drexel Heritage, and Maitland Smith.
• Samson Holding, the Chinese-owned parent of Lacquer Craft and U.S.-based Universal Furniture, Legacy Classic, Craftmaster, and Pennsylvania House, reported a new loss of $18.5 million for its FY2008. Total sales came in $466.6 million vs. $508.7 million in the prior year. The company acquired U.K.-based furniture maker Willis & Gambier last October. 
• Hooker Furniture posted a net loss of $719,000 in its 4Q2009 on sales of $56.5 million. For the full year sales were $261.2 million, down 17.6 percent from the prior year. Full-year profit was $6.9 million, down 65 percent.
• Stanley Furniture is reducing its work force by 100 at its Stanleytown, VA, plant.
• Ethan Allen Interiors reported a 40.6 percent drop in its 3Q2009 sales with an operating loss of $74.7 million.  Sales at its 159 company-owned stores declined 40.2 percent while shipments to 131 independent retail stores fell 43.6 percent. The company announced the expansion of its Maiden, NC, upholstery plant and the addition of 300 jobs over the next three years. Its Chino, CA, upholstery operation employing 200 workers will be closed.
• Case goods manufacturer Theodore Alexander has completed a 215,000 square foot expansion of its plant in Ho Chi Minh City, Vietnam. Plant capacity will increase by about 50 percent through the addition of finishing and upholstery operations. With 1.5 million square feet of plant space and 7,000 workers, the company is one of the largest furniture makers in Southeast Asia.
• The bankruptcy court has rejected a bid by Geosam Investments to take over Canadian furniture maker Shermag. Geosam has funded Shermag’s operations since July 2008 shortly after the furniture producer sought protection. Shermag sought continued protection to operate during its restructuring process. However the court has begun a public tender process or the sale of the company’s assets including its two core businesses – upholstery maker Jaymar and importer Shermag. The objective is to sell the two businesses separately as going concerns. The now-idle production facilities are not considered part of the core assets of either business.
• Creditors of Canadian bedroom producer Durham Furniture have approved the company’s restructuring plan.  The solid wood bedroom specialist will leave was planning to exit bankruptcy in April.

Office Furniture

BIFMA, the sector trade association, reported a 38 percent decline year-on-year in April office furniture orders.  Shipments fell by 30 percent y-o-y vs. a 2 percent increase in 2008. These performances follow declines in March orders of 33 percent and 29 percent in shipments. Clearly this sector is in the midst of a severe air pocket. The twelve-month moving average of industry shipments has fallen for $11.46 billion to $10.175 billion since February 2008.

BIFMA has lowered its 2009 industry forecast for the fifth time since February 2007 and now anticipates 2009 order and shipment declines of 29.3 and 28.6 percent respectively. This revision reflects the fact that all relevant economic drivers of office furniture consumption – office construction, white collar employment, and office vacancy rates – have turned negative. Modest improvement is foreseen in 2010 with orders and shipments growing 2.6 and 2.8 percent respectively.

At the company level…

• Steelcase announced that its FY2009 sales totaled $3.18 billion, a 7 percent decline from the prior year.  Operating income plunged from $202.8 million to only $1 million. This reduction was primarily driven by the lower volume and material cost. Management is predicting 1Q2010 revenues to be $525 to $575 million compared to $816 million in 1Q2009. 
• Knoll announced a 20.6 percent decline in sales to $212.6 million in its 1Q2009. Operating margin was 7.9 percent, down from 11.9 percent last year. 
• HNI Corporation reported a decline in office furniture sales of 27.5 percent in its 1Q2009. 

Wood Flooring

At the company level…

• Armstrong World Industries posted flooring sales of $122 million in its 1Q2009, down 24 percent from the same quarter last year. The company recently re-hired 95 workers at its Randolph County, WV, flooring plant while temporarily closing its Vicksburg, MS, mill in May and eliminating one shift of operation at its West Plains, MO; Jackson, TN; and Center, TX, mills.
• Flooring producer Mohawk Industries is closing its Columbia Flooring hardwood flooring plant in Melbourne, AR.
• Shaw Industries has reduced its staff by 45 at its engineered flooring plant in South Pittsburg, TN.

Panels & Engineered Wood

• Weyerhaeuser is closing several of its engineered wood mills:  (a) the veneer and engineered wood mill in Evergreen, AL, and the mills in Dodson and Simsboro, LA, and (b) the TimberStrand mill in Chavies, KY.  Combined with the closure of five service centers across the country, 480 workers will be affected.
• Russian plywood production fell by 44 percent in January 2009 compared to the same period a year ago.
• Residential construction accounts for about 57 percent of OSB consumption in North America – as a result, more than 10 billion square feet of OSB capacity has been removed from the North American market over the last three years. Last year OSB production totaled about 29,634 million square feet in North America of which 18,060 million square feet were produced in the U.S.

Non-Residential Construction

According to the American Institute of Architects, business conditions are moderating. The April Architecture Billings Index (ABI) is at 42.8, a slight decline from March’s 43.7. The ABI has been below 50 since January 2008.

An encouraging sign is the interest in new projects, which remained very healthy at 56.8 following a 56.6 score in March.

Art Raymond is a manufacturing consultant specializing in furniture, cabinetry, millwork, and other value-added wood products.  His firm, A. G. Raymond & Company Inc., develops management and technical solutions for wood products manufacturers around the world.  Comments and questions are welcomed at araymond@raymondnet.com or through www.raymondnet.com.

PUBLIC POLICY

The new leadership at the U.S. Department of Labor has already begun to put its stamp on the agenda for worker safety. Shortly after her confirmation by the U.S. Senate, Secretary of Labor Hilda L. Solis announced that the Occupational Safety and Health Administration (OSHA) would initiate a comprehensive rulemaking on combustible dust.

OSHA will issue an Advance Notice of Proposed Rulemaking and convene related stakeholder meetings to evaluate possible regulatory methods. It will also request data and comments on issues related to combustible dust such as hazard recognition, assessment, communication, defining combustible dust, and other concerns.

According to OSHA, since 1980 more than 130 workers have been killed and more than 780 injured in combustible dust explosions. These include 14 people who were killed in a dust explosion on February 7, 2008, at an Imperial Sugar Co. plant in Georgia and three workers who were burned in April 2009 in an Illinois pet food plant dust explosion.

"Over the years, combustible dust explosions have caused many deaths and devastating injuries that could have been prevented," said Secretary Solis. "OSHA is reinvigorating the regulatory process to ensure workers receive the protection they need while also ensuring that employers have the tools needed to make their workplaces safer."

Combustible dusts are solids ground into fine particles, fibers, chips, chunks or flakes that can cause a fire or explosion when suspended in air under certain conditions. OSHA notes that types of dusts include metal (aluminum and magnesium), wood, plastic or rubber, coal, flour, sugar and paper, among others.

In 2006, the U.S. Chemical Safety Board (CSB) recommended that OSHA issue a combustible dust standard designed to prevent combustible dust fires and explosions in general industry, based on current National Fire Protection Association (NFPA) dust explosion standards.

The CSB also recommended that OSHA revise the Hazard Communication Standard (HCS) (1910.1200) to clarify that combustible dusts are covered and to ensure that Material Safety Data Sheets (MSDS) contain information about the hazards and physical properties of combustible dusts. According to the proponents of a new standard, MSDSs often do not adequately address the hazards of combustible dusts, and the HCS inadequately addresses dust explosion hazards and fails to ensure that safe work practices and guidance documents are included in MSDSs.

If the Department of Labor does not act, Congress is prepared to do so. Representative George Miller (D-CA) has introduced H.R. 849, the Worker Protection Against Combustible Dust Explosions and Fires Act of 2009.

The legislation would require OSHA to establish a standard that shall, at a minimum, apply to manufacturing, processing, blending, conveying, repackaging, and handling of combustible particulate solids and their dusts, including organic dusts (such as sugar, candy, paper, soap, and dried blood), plastics, sulfur, wood, rubber, furniture, textiles, pesticides, pharmaceuticals, fibers, dyes, coal, metals (such as aluminum, chromium, iron, magnesium, and zinc), fossil fuels, and others determined by the Secretary, but shall not apply to processes already covered by OSHA's standard on grain facilities. The standard would include the following:

1. Requirements for hazard assessment to identify, evaluate, and control combustible dust hazards.
2. Requirements for a written program that includes provisions for hazardous dust inspection, testing, hot work, ignition control, and housekeeping, including the frequency and method or methods used to minimize accumulations of combustible dust on ledges, floors, equipment, and other exposed surfaces.
3. Requirements for engineering controls, administrative controls, and operating procedures, such as means to control fugitive dust emissions and ignition sources, the safe use and maintenance of dust producing and dust collection systems and filters, minimizing horizontal surfaces where dust can accumulate, and sealing of areas inaccessible to housekeeping.
4. Requirements for housekeeping to prevent accumulation of combustible dust in places of employment in such depths that it can present explosion, deflagration, or other fire hazards, including safe methods of dust removal.
5. Requirements for employee participation in hazard assessment, development of and compliance with the written program, and other elements of hazard management.
6. Requirements to provide written safety and health information and annual training to employees, including housekeeping procedures, hot work procedures, preventive maintenance procedures, common ignition sources, and lock-out, tag-out procedures.
7. Requirements for managing change of dust producing materials, technology, equipment, staffing, and procedures.
8. Requirements for building design such as explosion venting, ducting, and sprinklers.
9. Requirements for explosion protection, including separation and segregation of the hazard.
10. Relevant and appropriate provisions of the National Fire Protection Association combustible dust standards.

This past February, WMMA established a task force to monitor regulatory and legislative initiatives related to industrial dust. Our principal concern is that the standards provide realistic achievable performance goals for woodworking work places. As OSHA moves forward with its regulatory project, the task force will step up efforts to voice our concerns.

INTERNATIONAL BUSINESS DEVELOPMENT

The following is a summary of major trends of U.S. exports and imports for the January – March 2009 period. Statistics are reported for all woodworking equipment and its three component parts: machines, cutting tools, and accessories and parts.

(WMMA members: to view detailed tables on U.S. imports and exports of machinery, cutting tools and parts and accessories, by country visit http://www.wmma.org/members/imports_exports_acces.cfm. You will need your user name and password. If you don’t have one or forgot it, contact WMMA Headquarters at 215-564-3484 or email info@wmma.org.)

Harold Zassenhaus, Zassenhaus Export Management Group, is available to provide U.S. export and import data on specific product categories. For more information, contact him at (301) 652-0693; or email Harold@zemg.us. Please note his new email address.

Total Woodworking Equipment Trade

Exports of woodworking equipment (machinery, cutting tools and parts and accessories) finally bore the effects of the depressed global economy and the increased value of the dollar over the first quarter, dropping 27 percent. There were some positive signs, however proving that pursuing exports diversifies your client base and moderates swings.

Exports to Mexico and China dropped but only by comparatively moderate amounts – 9 percent and 1 percent, respectively. And sales to smaller markets like Uruguay, France and Ireland shot up.

Imports of woodworking equipment registered a dramatic decline during the first quarter 2009, dropping to $194 million or 42 percent compared with the same period in 2008. Machinery imports were down 49 percent; parts decreased by 31 percent and tooling was down 52 percent.

Imports from China, our largest supplier, decreased 26 percent (32 percent market share). The following highlights the major changes of our 10 largest suppliers.

Although not surprising it is worth noting that China is now the largest supplier to the U.S. of machines, cutting tools and parts. Still, the large majority of Chinese imports continue to be small commercial products like mitre saws, scroll saws, band saws, etc. valued at under $1,000.

Machinery Trade

Machinery exports decreased but at 17 percent the drop was manageable. There were some promising markets, including Mexico, Uruguay, Finland and France as the following table shows.

With only first quarter statistics available, only a few major import trends can be spotted:

• China continues to gain market share;
• Germany and Italy continue to face difficult times in the U.S.; and
• Brazil continues to make inroads as U.S. woodworkers seem to be looking for lower priced alternatives.

Cutting Tools

Exports dropped to $22 million. However, there were some bright spots as the following shows.
 

Cutting tools imports were not spared the U.S. economy’s fate as woodworkers put off some product maintenance to save cash. Cutting tool imports dropped 39 percent and most of our top ten suppliers saw decreases as the following table attests.

Parts & Accessories

Exports decreased by 22 percent. But, like machinery and tooling exports to some countries shot up as U.S. products were in demand.

Like tooling, parts and accessories imports dropped as machinery purchases fell and customers delayed maintenance.

BUSINESS DEVELOPMENT

Construction Put in Place - April 2009
Manufacturing and Trade Inventories and Sales - March 2009
Manufacturers’ Shipments, Inventories and Orders - April 2009
New Residential Construction - April 2009
Purchasing Managers Index – May 2009
U.S. Leading Indicator - April 2009

NEWS YOU CAN USE

WMMA’s Manufacturing Strategies Committee toured Merillat Cabinet plants in Atkins, VA in early June. Members took away an understanding of Continuous Improvement (CI) and how the process can dramatically improve manufacturing results.

In the first of a series of member observations, Committee Members Matt Carroll, Art Raymond and Mike Fiantaca briefly describe what they learned.  

Matt Carroll, Black Bros. Co.

I recently had a chance to visit a world class manufacturer of cabinets. This American manufacturer has developed a manufacturing philosophy for continuous improvement (Lean principles) throughout their company. They have transformed not only their manufacturing processes to reduce lead times, maintain quality, but also change the company culture to accept change through education, training, and empowerment. Their people/employees have developed a Continuous Improvement System that will keep this American company and its people moving forward. I encourage other WMMA members to seek out customers and ask them how we as machine manufacturers and suppliers can help them “Go Lean.”

Five Observations:

1. Merillat’s philosophy is that no Lean process will result in an employee getting laid off.
2. Benchmark or visit other companies when your company starts the Lean journey.
3. “Lean” and “Green” can be done together and they both add value to your company and product.
4. Because of the continuous improvement process, Merillat’s lead time went from 5 days to 8 hours.
5. The biggest challenge is most likely changing the culture of your company.

Art Raymond, A.G. Raymond & Co.

My interest in visiting Merillat was to learn more about how to get started on the lean journey rather than on-the-floor ideas being used by machine operators and the like…

1. The first step is twofold – (a) to establish the manufacturing task for the plant, i.e., what must the plant do well in order to support its owner’s financial and marketing objectives and (b) to set measurable expectations for those tasks.
2. Then you must invest in a lean/continuous improvement champion, i.e., a person skilled in teaching and implementing the philosophy – The task of implementing lean is a full time job and cannot be accomplished by someone with other responsibilities.
3. Next you must educate the work force through a formal training program about the lean/continuous improvement philosophy and approach – This training must continue beyond the basics into problem solving, working in teams, using lean analytical tools, and performance measurement.
4. Then standard work processes must be developed and documented based on value stream mapping, kaizen events, etc. to ensure that every job is completed using the optimal methods – In doing so you will eliminate waste and minimize errors, both steps that will reduce cost and increase throughput. An example is the documentation of all procedures for machine operation, maintenance, etc. in “need-to-know” notebooks located at each work station.
5. Plan for the journey to be endless – The word continuous in the term continuous improvement means that you will be striving for lean forever. This fact is driven by changing market conditions, new product introductions, new materials and machines, etc.

Mike Fiantaca, Accurate Technology, Inc.

There were many things that struck me as interesting during our Merillat tour. Their continuous improvement program (CI) has been in place for 10 years now, and I’m sure each of us on the tour observed different things – each as good as the next – for helping our business improve. Collectively, we had more than 30 observations, and I’m sure many more were missed. Here’s a brief sample of what I took away:

1. At each machine/workstation, there are Need-to-Know binders that detail what a new employee needs to know to complete their job function. There is also a PREVENTATIVE maintenance checklist – with photos – included in the binder. These are very simple to read, easily accessible, and easy to create.
2. Tools that belong to a particular work cell (or machine) are not only mounted onto a shadow board, but have color coded handles. The color coding helps keep these tools separated from the next station’s tools. This is also very simple to implement, understand, and use.
3. There are red and yellow lights in different zones of the plant. When either of these is lit, there is a backup of work further down the line. By turning on the lights, workers can be moved up/down the line to adjust for the workload at any given time during a shift, and the movement is nearly automatic. In the loud, busy environment, it was amazing to see the change that very simple technology made to balance their workflow.
4. Many of the motors in the plant have had small filters added next to their fans. These filters keep dust out of the motors. Perhaps more important, these filters help to control dust movement in the plant’s air. A simple PM program ensures the filters are kept clean.
5. As many of us know, getting employees to buy-in to a CI program can be a difficult sell. Merillat has accomplished this task in many ways. During orientation, new employees watch a video that defines Merillat’s CI program and its goals.  Employees are shown how CI can make their jobs easier, makes their jobs simpler to teach to others, and how it improves their general safety in the workplace. Employees are then ‘kept in the loop’ as they participate in Kaizen events. Even in daily activities, there is a form near every work cell where they can list ideas. No idea is simply discarded; instead, they are discussed, and a full answer is given to the employee defining how and why a Yes/No decision is reached. Everyone is part of the program, every day. One of the best parts of Merillat’s CI program: All employees understand that no job is ever eliminated as a result of CI implementation. Although a job function may be eliminated, employees can move to another line, machine, or building.

I wish to extend my thanks to Merillat for hosting us. They have a good sense of what it takes to compete in a global economy, and are willing to share the knowledge. Keeping American jobs here requires working together – a mentality that is strongly fostered and fondly expressed by Merillat and its parent company.

For further comment on the Merillat visit and the manufacturing policy “house,” read Ken’s Korner – More Than Just Wood.

ASSOCIATION NEWS

Members Attending AWFS

Tough challenges are met by tough companies. Click on the gloves to see who’s exhibiting at AWFS®VEGAS, July 15 - 18. Visit WMMA at Booth #5327!

Are you curious about what happened at LIGNA 2009? The WMMA Pavilion was shared by nine member companies: Black Bros. Co., Brewco, Lenox/American Saw Mfg. Co., Newman*Whitney, C.R. Onsrud, Shopbot Tools, Super Thin Saws, Viking Engineering, and Williams & Hussey.
 
“Sign Me Up!” Says Brewco

For Bill Hendrix of Brewco, LIGNA 2009 was a welcome opportunity to evaluate the world’s largest woodworking show and expose the company to new markets. Exploring how to participate in LIGNA as a first-time exhibitor, Hendrix read about the invitation to share the WMMA booth with other members. “Sign me up,” said Hendrix who recognized the value of sharing expenses, as well as the experience and camaraderie of other U.S. companies. “The booth and the show exceeded my expectations,” said Hendrix. “Buyers and distributors were prepared to do significant business. Four out of the five days were extremely busy with booth traffic, meetings and demonstrations. I made important contacts and am following up on serious sales leads. I’m already looking forward to LIGNA 2011.” Family owned since 1981, Brewco, of Central City, KY, manufactures saw mill, pallet mill, staves and railway ties equipment.

At the WMMA Pavilion at LIGNA 2009, Ken Hutton talks to visitors. Some of the members who shared the WMMA Pavilion at LIGNA 2009. Pictured from left to right: Bill Feisler, Newman*Whitney; interpreter Andres Samelius; Rick Becker, Black Bros.; Mark Stevens, Viking Engineering; John Schultz, Super Thin Saws; interpreter Lisa Popovski; Ken Hutton, WMMA; interpreter Sofia Dalkeranidou; Bill Hendrix, Brewco; Bernie Brummer, Lenox; Julia Borges, Lenox

Black Bros. Doing Business despite the Economy

Rick Becker, International Sales, Black Bros. Co., offers this report:

My sales territory is everything outside of the Americas. The phone calls and emails for the past six to eight months have decreased significantly, so I traveled to LIGNA 2009 with no great expectations. I wanted to make new contacts and possibly visit with some current customers who had proposals and just needed to take the next step to purchase. I accomplished my desires.

I met with three current customers. If it had not been for the show and my attendance, distance and travel in these times would have prevented these meetings. 

My sales leads and meetings involved companies from Indonesia, Romania, Australia, Iran, China and Germany. I took the opportunity to visit with adhesive representatives I do not cross paths with in normal situations. I also spoke with other machine manufacturers, material handlers, and integrators as well as the dealers who were walking the show. 

The WMMA booth arrangement is very convenient and affordable. LIGNA 2009 is the fourth show with this arrangement that I’ve attended in the past three years. Each has been well done and given me and Black Bros. very good answers to what we might expect for business in the countries visited. I can only expect Black Bros. to continue to participate in this type of venture.

From “More Than Just Wood”

Blogged directly from LIGNA, Ken Hutton’s comments include:

...Serious business inquiries were the norm. Sales orders were written. New distributor arrangements were put into place. Buyers were visible in the presence and interest from most developed countries, except for the USA…
 
Read more…

(Ken Hutton will be blogging from the AWFS Fair in July – be sure to subscribe! At More Than Just Wood, on the right column, click “Feed” under Syndication. Members and others interested in the industry are always welcome to read and comment.)

Registration for upcoming WMMA webinars is now open! Register now for these free events, an exclusive benefit of WMMA membership.

Washington Update with John Satagaj

(Friday, June 26, 2009 at 1:00 PM EDT, 12:00 PM CDT, 11:00 AM MDT, 10:00 AM PDT>)

Where do we stand? In February, WMMA members flew to Washington to express our hopes and concerns to Congress. Are they listening? Is there really a chance Congress could deal with health care reform this year? Will there be another stimulus bill this year? What does the budget resolution have to do with estate tax relief? What are the prospects for a combustible industrial dust bill? The President has announced the creation of a tax reform task force, are they doing anything? The labor community seems to have been outflanked in their effort to get a union organizing bill passed, is that the end of the story? If Congress takes up the issue of regulating greenhouse gases, will it have an impact on our industry? WMMA Legislative Counsel John Satagaj will address these issues and any other questions you may have about what is going on Washington.

Is the End in Sight? An Economic Forecast by Alan Beaulieu

(Wednesday, July 22, 2009 at 1:00 PM EDT, 12:00 PM CDT, 11:00 AM MDT, 10:00 AM PDT)

The stock market rebound has been touted as the “beginning of the end.” While it does not yet meet the ITR® criteria of a leading indicator signal for a recovery, economist Alan Beaulieu is starting to see leading indicator signals confirming a 2010 recovery. Meanwhile, be prepared for continued volatility in the market through at least the summer and a tough 2009 all around. Alan Beaulieu will discuss what the latest economic data is revealing and tailor his forecast for the woodworking industry. This webinar will allow time for a lively interchange of questions and answers.

ANSI Checklist: A Benefit of Membership

Download the free Checklist for American National Standard O1.1-2004 Woodworking Machinery – Safety Requirements "Referenced Checklists" made available by the WMMA Manufacturing Strategies Committee. The workbook helps you perform a safety review of equipment to ensure it complies with the ANSI 01.1 woodworking machine safety standard. This checklist workbook has an index in the back that helps you find topics quickly; each item has a box beside it that can be checked to indicate that you have complied with that portion of the standard. This will also be a useful tool if an accident should occur with your equipment to help you justify your manufacturing and "Warning" label choices.

Go to the Manufacturing Strategies Committee page and look under the Engineering Standards section or click here to go directly to the document. Note that the file is 3MB and may take a few moments to download.