Specialization, quality, and economic good sense top list of reasons for outsourcing.
Wood & Wood Products interviewed a diverse group of manufacturers including furniture and cabinetry manufacturers, a toy maker and a manufacturer of components, to find out why they chose to buy wood components from outside sources.
Schroll Cabinetry Outsourcing for 18 Years
Cheyenne, WY-based Schroll Cabinets is a family-owned manufacturer of kitchen cabinets, vanities, residential furniture and bookcases. Some 100 employees work for the 23-year-old company, but when it comes to wood components for the kitchen cabinet lines, Schroll orders out.
"We have been outsourcing our wood frame parts such as stiles, rails, door frame parts, drawer fronts, door panels, blanks and mouldings for the past 18 years for a myriad of reasons," said company President John Schroll.
"For one, outsourcing parts from a vendor gives you a consistent cost factor. You know how much the piece costs time after time after time. When you make it yourself it is harder to determine the price of manufacturing. We buy an assortment of parts - some 500 different components - and when we buy a door rail, the cost remains constant. To make the same part in-house, pricing becomes much more of a variable factor," explained Schroll.
Inherent in determining the price is the cost of the machinery it takes to produce some parts. "The part reflects the price of machinery, equipment, the employees who run it and the space it takes up in the plant," Schroll said.
Another factor in its decision to outsource certain products is the company's location. "In Cheyenne we are far away from timber hardwood sources. If we produced our own parts, we would have to bring in the raw material, paying shipping on items we would end up throwing away since we would not utilize all of the lumber in our products. The parts we buy are the parts we use, so we never pay shipping on scrap material," explained Schroll. "If we purchased lumber we would end up burning or throwing away from 30 to 50 percent of the lumber order, depending on the grade of lumber of the truckload.
"Also, wood needs to be handled and kiln dried properly," continued Schroll. "Our vendor has kilns on site and can produce the quality wood that is needed. We don't want to get into the area of kiln drying lumber, checking it for proper moisture, storage of the lumber and inventory of the species we need."
Schroll echoed everyone interviewed for this article when he pointed to the quality factor. "Of course, the quality depends on who you are doing business with, but when you buy a part from someone who specializes in that part, you can expect a higher level of quality than you could produce in house," Schroll said.
Component Maker Heeds Own Advice
Robert Dimke is president of Lexington Mfg. Inc. of Coon Rapids, MN, a family-owned company founded in the 1950s and incorporated in 1981. Lexington's products? "We manufacture large volumes of tight-tolerance components for kitchen cabinets, furniture and store fixtures and specialty palleting parts."
Dimke said if you have a Nordic Trak skier in your home, it is very likely that his company produced the wooden parts. Lexington Mfg. also manufactures components for wrapped products for windows, for architectural products such as flush, doors, and surfacing millwork, housewares and RTA furniture.
While Dimke said his company manufactures more components than it buys, he does listen to his best arguments for outsourcing when he purchases components from someone else. "I am in the unique position of being able to see both sides. We outsource when the company we purchase from has a strong suit - i.e. the people and machinery and strengths to produce a higher quality component than I can make."
Dimke said the convincing arguments for outsourcing a component include quality factors. A component specialist offers a higher quality piece for a lower price. "If a part costs a dollar when you outsource it, it will always cost a dollar. You only pay for good parts. Rejects are not your problem," Dimke said.
Dimke also said that people outsource today because the industry is becoming more capital intensive. "We have four CNC routers at a cost of $250,000 a piece. We can support that type of capital investment because we do high volumes of work. We are specialists and we keep the machinery working around the clock. A manufacturer has to do high volumes of work on those machines to justify the money used to purchase the machines, the space it takes to house them, plus the manpower it takes to run the machinery. You buy these machines; you need a lot of work (to pay for them)," said Dimke, whose company posted an estimated $7 million in sales last year.
Outsourcing some things allows Lexington to sell its product at a lower cost because it does not pay for materials not used. "We use a lot of long clear lengths of lumber, but not much of the shorter lengths. By outsourcing those types of processed lumber we are not paying for scrap we ultimately would not use. We strive for a higher utilization of all materials. By outsourcing the lumber components, we buy exactly what we need," Dimke said.
Dimke explained that manufacturers perform at their best when they play their strong suit. "We are not rough milling components. We buy more and more processed lumber items and take it to the next step. We have increased our component buying each year," said Dimke, "because of a growth in our customer base."
Toymaker Leaves Woodworking to Experts
TEDCO switched "gears" in November of 1982, changing from being the engineering company responsible for inventing the cruise control system for cars to being a maker of science and education toys and kits. TEDCO, which stands for Teetor Engineering Development Co., was named for its founder, the renowned engineer Ralph Teetor. The toy company has carved out a niche for itself with its two main products, gyroscopes and prisms. (Marc Marlatt, plant manager, said in 1996, TEDCO shipped 26,000 gyroscopes and produced 12,000 prisms each month).
While Marlatt said TEDCO is experienced in outsourcing various parts of its educational toys, it had no background in working with wood when the company purchased a toy called Blocks and Marbles from a company that had gone out of business. "Blocks and Marbles had been on the market for eight or nine years but the company had faltered. Blocks and Marbles is a very old concept toy and when we decided to feature it, we went back to the original design and packaging ideas and developed two versions of the game - a super set and standard set," said Marlatt. "After researching the idea of manufacturing the pieces ourselves, we decided outsourcing made more sense. We work with acrylics for our other products and we had our hands full manufacturing our two main lines. We had no experience with wood so we decided to buy the component parts we need in mahogany, maple and ash."
Marlatt said the company had to find the right wood component company to outsource its parts. Marlatt explained that outsourcing the wooden components made sense as a means of quickly introducing the games. Making the parts would have switched the focus to acquiring new machinery, new processes, purchasing raw material, employee training plus the trial-and-error period involved in learning how to make the wooden blocks. Marlatt said the company decided to "get our feet wet" by outsourcing wood rather than entering into the much more complicated arena of manufacturing wood.
While the Blocks and Marbles games have only been on the market for less than a year at TEDCO, Marlatt says they are now 10 percent of the company's sales. TEDCO products are traditionally sold in toy stores and by toy distributors. Products are shipped to 30 different countries. The company does not advertise but does have a catalog and markets its products at various toy shows. Marlatt said the company's main toys, including the Blocks and Marbles sets, will be featured on QVC, the home shopping network. QVC executives routinely preview products and chose TEDCO's Blocks and Marbles to be featured on the television show, a move that could catapult sales.
Schrock Outsources Dimension Components
Bob Davis of Schrock Cabinet Co. in Arthur, IL, explained his company's philosophy for concentrating on one end of manufacturing and outsourcing for another. Schrock Cabinet Co. was founded in 1961 as Schrock Brothers Manufacturing.
The company, with sales of $130 million annually, employs some 600 people making kitchen and bath cabinetry. Most of the solid wood components Schrock uses are bought elsewhere, said Davis, while the company purchases sheet stock and makes most of its engineered wood parts in house. Davis explained that 90 to 95 percent of the solid wood parts are outsourced and 95 percent of the plywood and particleboard-type components are made in house.
"Our philosophy is to hire as few people as possible," said Davis. "We concentrate on our area of expertise and outsource the wood components, which is someone else's area of expertise. We feel that dimension work is harder in that it represents a lot of tooling, expensive equipment and high maintenance, plus added employees. For us it makes more money sense to outsource these items. If we manufactured them from scratch we would have to purchase whole logs, in a variety of woods to fill the orders for our custom line. Unless you can utilize the entire log, you are investing in something that will end up as waste," Davis said.
"The component manufacturer has maximum yield because he is probably using the entire log for furniture and cabinetry, while we would only use a part. This way we can also offer a diverse selection of colors and woods. You are always trying for maximum yield of material," Davis added.
At Schrock, the items the company outsources, such as wooden doors and face frames, are called "buy outs." The wooden door and drawer frames are sanded and finished in house. Outsourcing has been increasing steadily since it was begun in 1985, said Davis, because business has been increasing steadily. Based on sales projections for the year, Davis expects to "buy out" the same amount or slightly more in 1997. "We had a great first quarter," said Davis, "(and we were) working a lot of Saturdays. We are having a good steady second quarter."
The 'Economics' of Buying Parts
Kitchen Mart Inc. of Sacramento, CA, is a 21-year-old company whose primary focus is on the residential kitchen cabinet refacing market. The company, which employs 25 people, also offers a line of custom cabinetry. President Jim Bartol said sales for the past year were in the $3 million range. Bartol explained that his company buys all of its cabinet doors for the resurfacing work and custom cabinetry because of "economics."
"We buy from $350,000 to $400,000 a year of outsourced material," said Bartol. "We thought about making the doors ourselves but found it is not as economical as outsourcing. We have done our homework. We cannot produce a door for the price that we can buy one."
Bartol said anyone looking at the economics of outsourcing must consider the many costs involved in manufacturing - the cost of buying expensive equipment, housing and maintaining it, additional employees and their costs including training, wages, and worker's compensation and the waste that goes along with manufacturing doors from scratch.
"It works out well for us to buy rather than make because we have found a dependable, customer-oriented supplier," Bartol said. "If there are remakes and redos no matter whose fault it is, they are very responsive."
Bartol explained that his company does finish sanding and touch up work on its purchased components but that is part of the expected labor in buying doors and other parts.
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|Title Annotation:||1997-98: Wood Components Purchasing Guide|
|Publication:||Wood & Wood Products|
|Date:||Jun 1, 1997|
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